Health Savings Accounts (HSA) function as tax-advantaged accounts that can be used to pay qualified medical expenses for people enrolled in high-deductible health plans.
They differ from Flexible Spending Accounts (FSA) in several ways, including the common ability to roll funds over from one year to the next when a balance remains in the account.
Some details of these accounts were changed under the Affordable Care Act to clarify eligible uses and reduce improper claims; plan terms can still vary, so review your specific HSA rules closely.
Early withdrawal penalty
Withdrawals from an HSA must be used for qualified medical expenses to keep their tax advantages.
If funds are spent on nonqualified or undocumented expenses, a penalty is assessed in addition to ordinary income tax on the withdrawal; that penalty is generally higher for younger account holders and is waived for those age 65 and older or who become disabled.
Over-the-counter medications
Purchases of over-the-counter medications with HSA funds now generally require a prescription to qualify, so keep documentation when you use HSA dollars for these items.
Weight-loss products and dietary supplements have not been eligible for reimbursement under HSA or FSA rules unless they are specifically prescribed as treatment for a diagnosed medical condition.
HSA funds are still commonly allowed for many other medical expenses, including insurance co-payments, dental and vision care, chiropractic services, medical equipment such as wheelchairs, eyeglasses and contact lenses, diabetic meters and supplies, and certain medical transportation costs.
For more detail on how an HSA interacts with coverage and which expenses are eligible, see Understanding Health Savings Accounts and Insurance.
If you need personalized guidance about your plan or how to use HSA funds, you can talk to an agent who can review your options.
Frequently Asked Questions
Who is eligible to open an HSA?
Generally, you must be enrolled in a qualified high-deductible health plan (HDHP) and not be enrolled in other disqualifying coverage to contribute to an HSA.
Can I use HSA funds for over-the-counter medicines?
Over-the-counter medicines usually require a prescription to be paid from an HSA, so retain any prescriptions or documentation you receive from a provider.
What happens to HSA funds after age 65?
After age 65, withdrawals for nonmedical purposes are treated as taxable income but are no longer subject to the earlier penalty; medical withdrawals remain tax-free if qualified.