A Health savings account is a tax-exempt savings account created to help individuals save pre-tax dollars for qualified medical, dental and vision expenses. This allows you to put money aside and withdraw it tax-free, provided you spend it on qualified services.
You can use your HSA to pay for doctor visits, acupuncture, ambulance costs, prescription drugs, psychiatric care, hearing aids, and qualified long-term care services. Also, you can spend the money on the same medical services administered to your spouse or children.
Is a Health Savings Account a Good idea in Your 20s and 30s?
When you are younger, and in good health, the last thing on your mind may be saving money for future medical costs. However, setting up a health savings account allows you to save more money since your savings are compounded tax-free for a prolonged time.
Why HSAs Make Sense for Young People
Young adults are considered a healthy demographic segment since they have reduced healthcare expenses. Therefore, an HSA can be a practical option for them since they save a lot of money by paying low premiums, and they can withdraw the funds tax-free anytime they have a medical emergency.
Withdrawals from Your HSA
You can withdraw your savings from your health savings account anytime you want. However, if you withdraw the funds for other reasons than to pay for qualified healthcare costs, your dollars will be taxed as normal income. The IRS may also impose a 20% penalty.
Contributions to Your HSA
You can only contribute to a HSA if you are participating in a qualified High Deductible Health Plan. You or your employer may contribute funds to your health savings account. These contributions are pre-tax The savings in your HSA is tax-deferred until retirement.
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