If you have the right health insurance plan, and some cash on hand, you might want to harness the superpowers of an HSA.
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If a high deductible policy is a good fit, you’ll need even more cash to take full advantage of an HSA: enough to pay the deductible and other health care expenses out of your own pocket, without tapping the account. That’s a pretty tall order, but you can still benefit from an HSA even if you have to spend some of the money along the way.
Superpower 2: You don’t have to spend the money Any unspent balances in your HSA can be rolled over from year to year. That’s in contrast to flexible spending accounts, another tax-advantaged way to pay for medical expenses. FSAs require users to spend the money within a certain period or those contributions are forfeited.
Superpower 3: Any withdrawal could potentially be tax-free As mentioned, withdrawals are tax-free if used for qualified medical expenses, including health insurance deductibles and copayments. The IRS maintains a list of eligible expenses ranging from acupuncture to X-rays. You can’t double-dip: Only eligible expenses that haven’t been reimbursed by another source, such as insurance or a flexible spending account, can justify a tax-free withdrawal.
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