A HEALTH SAVINGS ACCOUNT (HSA) is a type of savings account that allows you to set aside money from your paycheck (tax-deferred) to pay for future qualifying medical expenses. Many HSAs allow you to invest the funds in certain investment options within the plan to try and grow them. When you use the funds to pay for qualifying medical expenses (covered later), the distribution is NOT taxed. You read that all correctly – 1. PRE-TAX CONTRIBUTIONS, 2. TAX-FREE GROWTH, 3. TAX-FREE WITHDRAWALS!

There are several “catches” about the HSA that are worth knowing:

•     First, not everyone can contribute to an HSA. To contribute, you must be enrolled in a High-Deductible Health Plan (HDHP). In 2025, a HDHP is defined as a health plan with an annual deductible limit that is not less than $1,650 for self-only coverage or $3,300 for family coverage and for which the annual out-of-pocket expenses do not exceed $8,300 for self-only coverage or $16,600 for family coverage.

•        You do NOT qualify to have an HSA if you are enrolled in Medicare, another health plan, or can be claimed as a dependent on someone else’s tax return.

•          For 2025, if you have self-only HDHP coverage, you can contribute up to $4,300. If you have family HDHP coverage, you can contribute up to $8,550. You can contribute an additional $1,000 per person if you are 55 years or older.

•          An HSA can NOT be used to pay insurance premiums but will cover most other health-related expenses.

•          If you have are able to contribute to an HSA, you can do a rollover contribution from a Traditional IRA one time per year. However, you must stay eligible for an HSA for the next 12 months.                                                      

One of the unique things that we have noticed with HSA contributions as we have been reviewing tax returns is that they are NOT on your Schedule A if you itemize. Meaning that you will get an extra deduction for contributing to an HSA even if you use the Standard Deduction (a GOOD thing!). For those that qualify, we believe that contributing to a Health Savings Account is a fantastic idea. W encourage all of our clients to contribute what they can every year that they are eligible.

Next up: Mega Education Contribution – the 5-Year Contribution Rule

Disclosures

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.