A health savings account, or HSA, is a tax-exempt account that individuals can use to pay for medical expenses, with rules that include minimum deductibles, maximum contributions and penalties for early or non-medical withdrawals, states the Internal Revenue Service. Some high-deductible health plans allow individuals to open an HSA.
As of 2015, the minimum deductible to qualify for an HSA is $1,300 for individuals and $6,450 for family plans, states the IRS.
Individuals may only contribute up to $3,350 per year to an HSA, explains the IRS. Those with a family plan may contribute up to $6,650. Contributions above this amount are subject to a 6 percent tax until the excess funds are withdrawn from the account. Individuals age 55 and older may contribute an addition $1,000 per year.
Contributions to an HSA are not taxed, states Bankrate. The money grows tax-free, and individuals may withdraw funds tax-free for qualified medical expenses. Withdrawals for non-medical expenses are allowed, but are charged a 20 percent penalty tax, and individuals must pay income tax on the funds.
Once individuals reach the age of 65, they may no longer make contributions to the account, notes Kiplinger. They may continue to withdraw funds for medical expenses tax-free. They are not charged a penalty for other withdrawals, but still must pay income tax on withdrawals not used for medical expenses.