What are the tax advantages of contributing to an HSA?
A. Contributions to HSAs are made on a tax-deductible basis, meaning you can deduct them from your gross taxable income. You can invest contributed amounts as you choose, and those investment earnings accumulate tax-free until you need the money. Once you decide to make a withdrawal, that’s tax-free too, as long as the funds are used to pay for qualified medical expenses, including health insurance deductibles, most payments for medical services, prescriptions and dental and vision care. The penalty for a non-qualified withdrawal prior to age 65 is 10% and the penalty no longer applies after age 65, so you are then free to use your savings as you like.
