By Yigang Xu, CPA
XU CPA, LLC
Greenville, SC
www.mygreenvillecpa.com
A Health Savings Account (HSA) is a personal account, not an employer plan. In my view, when used correctly, it is one of the most versatile tax-advantaged accounts available.
Key Features:
Contributions are tax deductible when made.
The account belongs to the individual, not the employer. Job changes do not affect ownership.
Account growth is tax free.
Distributions used for qualified medical expenses are tax free.
Medical expenses do not have to be reimbursed in the same year they are incurred.
After age 59½, non-medical distributions are no longer subject to penalty (tax still applies), making the account function similarly to an IRA.
There is no income limitation or phase-out for HSA eligibility.
Many custodians allow full investment access (stocks, ETFs, fixed income, money market).
Common Misunderstandings:
Contributing while not eligible due to plan structure or secondary coverage.
Like a traditional IRA, contribution for tax year is due until April 15 of the following year.
Treating HSA funds as general savings without tracking qualified medical use.
Eligibility Requirement:
To contribute to an HSA, the individual must be covered by a qualified High Deductible Health Plan (HDHP) and must not have disqualifying coverage. Eligibility is determined year by year, and in some cases month by month.
2026 Legislative Update:
Beginning in 2026, the Big Beautiful Bill expands the definition of qualifying HDHP coverage. This change is expected to allow more health plans to qualify for HSA eligibility, reducing prior technical disqualifications that affected certain plans. Contribution limits and detailed thresholds will continue to be set annually.
This expansion improves access, but does not remove the need to confirm eligibility before contributing.
Thanks for reading.
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