One of the greatest benefits of a Health Savings Account (HSA) is that they have three tax advantages. HSA contributions are tax-deductible, the growth on invested contributions are tax-free, and the money can be used on qualified medical expenses tax-free. This makes HSAs the most tax-advantaged investment option for health-related expenses and retirement. Lastly, the funds in your HSA are always yours. Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow tax-deferred forever.
When you’re spending hundreds or even thousands of dollars on out-of-pocket medical expenses, you may be eager for more ways to save money. HSA's can help you save on taxes in three different ways:
- Lower your tax bill with a deduction for contributions
- Invest your HSA balance for tax-free growth
- Make tax-free withdrawals anytime for qualified medical expenses (including some over-the-counter medical products)
There’s no doubt about it—pairing an HDHP with an HSA is a savvy move. But it’s important to know the rules before you start making contributions.
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