A Health Savings Account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS.
In an HSA, you contribute money to a special bank account to be used for medical bills. You get a Federal tax deduction on the money you contribute to your HSA, and if you use the money for medical expenses, you pay no Federal tax or penalty on it. The HSA account can also earn Federal tax-free interest.
HSA always go along with a high-deductible health insurance plan. This means that if you need medical treatment, you must first pay the deductible, which you can do with money from the HSA. There are limits on how much you can contribute each year. In 2019 you can contribute up to $3,500 per year for yourself, or $7,000 per year for yourself and your family. If you are 55 or older, you can make an additional $1,000 as a “catch-up contribution”.
The money in HSA “roll-over,” that is: money you saved doesn’t disappear at the end of the year if you haven’t used it. You simply continue contributing to the HSA. There is no limit to how much you can have saved in your HSA.
The HSA is also “portable,” so you can move or change jobs and take the HSA with you. Some employers may also make contributions to your HSA for you as a job benefit.
Once on Medicare, you can not obtain a new HSA. If you already had one before joining Medicare, however, you can keep that HSA and use it, but you can not continue contributing to it. You can be eligible for an HSA even if you have already have a high-deductible health plan, but not if you already have traditional health insurance.