Health savings account rules: What to know

They’ve been around since 2003 and come with a lot of awesome benefits. The biggest perk is being able to contribute pre-tax dollars and have it grow tax-free.

Simply stated, a health savings account (HSA) is an account you can set up to pay for out-of-pocket medical expenses and health care costs. Your health plan must be a high deductible health plan to be eligible to use a health savings account. You can open an HSA on your own if you qualify, or open one through your employer.

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Rules, especially when created by the government, are usually complicated. We’re breaking it down in simple terms here to ensure you can take advantage of this awesome account.

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With an HSA, as we’ve stated, you don’t have to pay taxes on the money you contribute to this account.

Rule 1: Tax-free contributions

Another rule and perk of HSAs is that you can use your money without paying taxes (as long as it’s used to pay qualified medical expenses). The earnings and interest from this account are not taxed.

Rule 2: Tax-free withdrawals

There is no pressure to use your HSA in your current plan year because your HSA funds roll over to the next year and will be available for you to use then.

Rule 3: Money rolls over

If you’re on a family coverage plan, your minimum deductible must be $2,800 and your maximum $14,000.

Rule 4: Only available with high deductible health care plans

The maximum contribution limit is $7,200 if you’re on a family plan.  This is the maximum amount of money you can add to this account each year. The one exception is if you are 55 or older there is a catch-up contribution rule and you are able to contribute an additional $1,000 annually.

Rule 5: Annual contribution limits