Health savings account (HSA)

An HSA is an investment account that allows you to set aside money tax-free to cover health care expenses. They are similar to 401K retirement plans. You have to be enrolled in a high-deductible health plan to set up an HSA, and you cannot be on Medicare. However, if you had an HSA prior to being eligible for Medicare, you can still use the money in your HSA to pay for medical expenses. You just can’t continue to put money it your account after enrolling in Medicare.

There are annual limits on how much you can contribute to your HSA. Some employers may contribute to your HSA account.

The money in your HSA must pay for medical care. However, you do not need to spend all the money in your HSA within a year. Unlike a Flexible Spending Account (FSA), HSA funds roll over year to year if you don't spend them. The money stays in your account and continues to grow tax free. Money can also be withdrawn from your HSA account tax-free as long as you spend it on qualified healthcare costs.  

WebMD Medical Reference Reviewed by Sarah Goodell on June 21, 2021
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