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We've updated one of our most popular materials. See what's new in our guide to MERPs.

A Guide to Health Savings Accounts

Pros and Cons of a HSA

When evaluating Health Savings Accounts, consider these pros and cons.Health_savings_account_pros_cons

Health Savings Account - Pros

1. Tax Savings

Contributions you make to the HSA, up to the annual limit, are tax deductible. Likewise, any contributions made by your employer are excluded from your gross income ("pre-tax").

2. Full Rollover

All contributions remain in your HSA indefinitely until you use them. There is no penalty if you don’t use the money, and it rolls over year to year.

3. No Tax on Qualified Withdrawals

Withdrawals used to pay qualified medical expenses for you, your spouse, and your dependents are never taxed. And, interest you earn on the account accumulates over the years tax-deferred, and if used to pay for qualified medical expenses is tax-free.

4. Portability

The account is portable and yours to keep. It stays with you if you change employers or leave the workforce.

Health Savings Account - Cons

1. Contribution Limits

With Health Savings Accounts there are annual contribution maximums which limit how much you can contribute each year.

2. Eligibility Requirements

To contribute to a Health Savings Accounts, you are required to be enrolled in an HSA-Qualified High-Deductible Health Plan.

3. Complicated Rules

With HSAs, the individual is the plan administrator. As such, many individuals find the rules and recordkeeping of HSAs to be complicated and cumbersome.

Learn the differences between HSAs, HRAs, and FSAs