How Do Health Savings Accounts Work?
HSAs are set up with a “trustee,” usually a bank or insurance company, and are usually coordinated with your employer or health plan provider. But you can set up an HSA on your own, too, as long as you have a high-deductible health plan. You, your employer, and any other person – like a family member – can contribute to the account. Contributions are invested by the trustee and any investment income earned is added to your account balance. You can then withdraw funds to pay for qualified medical expenses, tax-free.
The maximum amount you can contribute each year is limited by the IRS and adjusted periodically. Experts often recommend maxing out HSA contributions if you can. In 2020, you can contribute up to $3,550, or $7,100 for families.2 If you are 65 years of age or older, you can also make catch-up contributions of $1,000.3
Most HSAs will provide you with a debit card and/or checkbook to pay for qualified medical expenses. But sometimes you may need to pay out-of-pocket and submit a claim for reimbursement. Either way, it’s important to keep receipts and expense documentation.