Health savings accounts are tax-advantaged savings plans that allow people to make tax-deductible contributions towards their health-care costs. Withdrawals, including investment earnings, are tax-free, provided the money is used to pay qualified medical expenses. Your employer may provide an HSA for you. If not, you can set an HSA up on your own.
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You must enroll in a high-deductible health plan to open an HSA. You can't be enrolled in Medicare and you may not be claimed by anyone as a dependent. If your employer provides the HSA, all you need to do to make contributions is to arrange with the payroll department for pre-tax deductions from your paycheck. To set up your own HSA, choose a provider approved by the IRS. Typically, banks and credit unions offer HSAs. You'll need to complete an application and there may be a set-up fee. With some plans, initial deposits are around $100.
HSAs allow you to invest the money in securities like stocks, bonds and mutual funds, although you may want some of the money in a bank account for quick access. If your employer chooses to add money to an HSA that you set up, follow the account provider's instructions to arrange for employer contributions.