BY Clark Howard Staff
Health savings accounts (HSAs) can be a great way to both plan for the future and meet your health care needs right now. The basic idea with HSAs is that you start with a high-deductible health insurance policy that offers a low premium. Then, taking the money you save in premiums versus traditional health insurance, you can funnel that cash into a tax-free investment account. Any money in your account that you don’t use for today’s health care expenses grows over time and can be tapped for future health expenses or used for retirement down the road.
HSA Guide: Here’s what you need to know
HSAs can be a real win-win-win situation. You reduce your taxable income by making contributions each pay period, just like you would with a 401(k) at work. The money you earn in interest or investment gains is tax-free, and eligible medical expenses qualify for tax-free withdrawals of the money. And here’s another nice feature of HSAs: Unlike flexible spending accounts (FSAs) that are “use or lose it” each year, HSAs are “use it or keep it” — that is, the balance in your HSA will roll over from one year to the next.