If you have a high-deductible insurance plan, a health savings account can help you prepare for medical expenses.
Your employer can transfer pre-tax money to an HSA, or you can contribute after-tax dollars and deduct contributions on your tax return.
Interest and dividends are tax-free.
You won’t pay federal taxes on expenditures for qualified health expenses. In most cases, you won’t face state taxes either.
If you use HSA money for non-qualified expenses, you will face taxes, and a penalty if you are under 65.
Money that isn’t spent can be rolled over from year to year.
Some people use an HSA to prepare for healthcare costs in retirement.