Health Savings Accounts, or HSAs, are special accounts designed to help those with high-deductible health plans pay their deductible and other out-of-pocket medical expenses. Due to the tax benefits these accounts provide, they help each dollar you spend on eligible expenses go further.
Here’s how it works. If you have part of your paycheck direct deposited into your HSA, then depending on your plan you may not have to pay any taxes on that money. If you contribute to your HSA directly with contributions from your personal bank account, you may qualify for a tax deduction as well. Of course, there are annual limits to these contributions.
In addition to the tax savings on the contributions to your HSA, you don’t pay taxes on the interest earned on the balance either. If you have extra money in your HSA, you may invest it in mutual funds. The money earned on these investments is also not taxed. Continue reading