1. To be eligible to contribute to an HSA, you must be covered by a qualified high-deductible health plan (HDHP) and have no other first dollar coverage (insurance that provides payment for the full loss up to the insured amount with no deductibles).
  2. You may use your HSA to help pay for medical expenses covered under a high-deductible health plan, as well as for other common qualified medical expenses.
  3. Unused HSA funds rollover from year to year, and may be able to be invested in a choice of investment options, providing the opportunity for funds to grow.
    • HSAs work in conjunction with an HDHP. All the money you (or your employer) deposit into your HSA up to the maximum annual contribution limit is 100% tax-deductible from federal income tax, FICA (Social Security and Medicare) tax, and in most states, state income tax.
    • You can use your HSA to pay for expenses not covered under your HDHP until you have met your deductible. The insurance company then pays covered medical expenses above your deductible, except for any co-insurance. Any coinsurance costs you incur can be paid for using your HSA. In addition, you can use your HSA to pay for qualified medical expenses not covered by the HDHP, such as dental, vision and alternative medicines.
    • If the funds in your account are used for other, nonmedical expenses, your dollars are subject to ordinary tax, plus a 20% penalty if you are under age 65.
    • The 20% penalty does not apply if the distribution occurs after you reach age 65, become disabled or die; however ordinary income tax may still apply.
    • Choosing which expenses use your HSA dollars vs. which to pay out-of-pocket with after-tax dollars is entirely up to you.