An HSA provides significant tax benefits*:
- HSA contributions — by employer or employee — are tax-free up to the maximum allowable amount.
- Dividends earned are tax-free.
- If used for qualified medical expenses, withdrawals are tax-free.
- After age 65, HSA assets may be used to pay for non-qualifying expenses, however the amount withdrawn will be taxable as income. Prior to age 65, HSA assets used for non-qualifying expenses will be subject to ordinary income tax, plus a 10% penalty.
Funds in your HSA remain in the account from year to year. There are no “use it or lose it” rules for HSAs. You can keep your HSA even if you change jobs, change your medical coverage, become unemployed, move to another state, or change your marital status.
* Consult your tax advisor for details