What is an HSA or Health Savings Account? A Simple Explanation for Kids & Teens

What is an HSA or Health Savings Account? Saving 101: Easy Peasy Finance for Kids and Beginners

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Introduction to HSA for Kids and Teens

This video explains the concept of an HSA in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about a Health Savings Account, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

Suitable for students from grade levels:

• Kindergarten
• Elementary School
• Middle School
• High School

The topics covered are:

• What is an HSA
• HSA tax benefits / tax breaks
• Where does the money for a Health Savings Account come from
• What is the maximum contribution limit for an HSA
• Can the money in an HSA be invested in anything
• What can the Health Savings Account money be used for
• Are there any penalties for using money in an HSA for non-qualified expenses

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What is an HSA?

An HSA or Health Savings Account is a type of tax-advantaged account that is used to set aside money to pay for qualified medical expenses.

In order to open an HSA, you need to have a high deductible health insurance plan.

The funds in a Health Savings Account never expire and simply roll over from year to year.

What tax benefits do HSAs offer?

HSAs offer a triple tax benefit.

You invest pre-tax money into an HSA – thereby reducing your taxable income, the money grows tax-free and withdrawals are also tax-free when you use the money for qualified medical expenses.

This is a better deal than other popular tax advantaged accounts.

Where does the money for an HSA come from? And is there a maximum contribution limit?

For 2022, the maximum HSA contribution for an individual is $3,650, and for a family is $7,300.

You can fund your Health Savings Account directly from your paycheck, or you can set up automatic transfers from your bank account to your HSA. Someone else – like a family member – can also contribute money into your HSA account.

Even if you switch to a lower deductible health insurance plan or otherwise no longer qualify for an HSA, you can still let the money in an existing Health Savings Account grow and withdraw it for qualified expenses – you just won’t be able to put new money into the account.

Can the money in an HSA be invested in anything?

The investment options within a Health Savings Account are determined by the HSA provider.

But usually, the selection is large, and spans across mutual funds, stocks and other avenues – so you should be able to find the right investment for you.

What can I use the money in an HSA for? Are there any penalties for using it for non-qualified expenses?

You can use the money for any qualified medical expense not covered by your high deductible insurance plan, including deductibles, copays, prescriptions, glasses and contact lenses, dental surgery, and more.

If you use the HSA money for non-qualified expenses, then not only will you have to pay income tax on the money like regular income, but you will also incur an additional 20% penalty.

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Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

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Podcast: What is an HSA / Health Savings Account