A health savings account is a custodial account that individuals covered by high-deductible health insurance plans can set up to pay medical expenses. The contributions to a HSA come out of an individual's pay on a pre-tax basis. Any interest the account earns is tax-deferred, and the funds can be withdrawn tax-free at any time to pay medical co-payments, deductibles and other expenses.Continue Reading
Only an individual with a health insurance plan that has a deductible exceeding the threshold set every year by the Internal Revenue Service is qualified to set up a health savings account. In 2014, the health insurance deductible had to be at least $1,250 for individual coverage or $2,500 for family coverage for a person to be eligible to use a HSA.
The IRS also limits how much an individual can contribute to an HSA every year. In 2014, a person with individual coverage could contribute up to $3,300, while a person with family coverage could contribute up to $6,550. A person over the age of 55 could contribute an extra $1,000.
People can open HSAs through an employer or directly with a bank or other financial institution, and they typically have direct access to the account through a debit card. It is up to the individual to correctly report HSA contributions and the use of funds on an individual federal income tax return every year.Learn more about Health Insurance