Small Business Glossary and Definitions

What are Health Savings Accounts (HSA)?

Health Savings Account (HSA) is similar to a Flexible Spending Account (FSA) as it allows an individual to set aside earnings for healthcare tax-free. In order to qualify for an HSA, an individual must have a healthcare plan with a high deductable, which is defined as at least $1,300 for an individual and $2,600 for a family plan.

An HSA allows a higher contribution limit than an FSA, which is adjusted by the Internal Revenue Service each year. For 2017, that limit is $3,400 for an individual and $6,750 for a family. The funds are to be used solely for qualifying medical expenses as defined by the terms of the account. Contributions can also be adjusted and changed throughout the plan year.

Advantages of an HSA include the ability to rollover all unspent amounts from year-to-year and transfer the account to a new employer without losing any funds. Another major advantage to an HSA is that the funds can be invested in financial instruments such as municipal funds or stocks. Any growth in these investments also enjoys the tax-free advantage of the HSA. These accounts often have strict requirements for eligibility and maintenance.