The primary eligibility requirement for all HSAs is that the owner of an HSA account must be enrolled in a high-deductible health insurance plan, either individually purchased or provided through his or her employer. The owner must not be covered by any other health plan, enrolled for Medicare benefits, or claimed as a dependent on another person's tax return. Anyone can contribute to a qualified HSA account (employers, family members, etc.), as long as the owner of the account meets the eligibility requirements.
HSA-Qualified Medical Costs
The owner of an HSA can withdraw funds tax-free at any time for any qualified medical costs. Copayments, dental work, vision correction, and chiropractic care are a few examples of HSA-qualified medical costs, which are not covered by many standard health plans. If the owner wishes to withdraw the funds for non-medical expenses, the distributions will be taxed and subject to penalty, similar to withdrawing funds from an IRA before retirement. After reaching age 65, HSA funds can be withdrawn for any reason with no penalties.
Benefits of an HSA
If you are eligible for an HSA, in relatively good health, and you or your employer are able to make regular contributions to your account, you can gain substantial tax benefits over time and eventually withdraw the funds for medical costs or out-of-pocket costs that you're likely to incur during retirement.
HSAs are typically most beneficial in situations where current health care needs are low and contributions to the HSA can be high over a long period of time. A major appeal of HSAs is that the contributed funds can be rolled over from year to year, and withdrawn tax-free for qualified medical purposes of the owner's choice, in any amount, at any time.