Health Savings Accounts (HSA) are popular ways to save tax-advantaged funds for medical expenses. HSAs can also help you save for retirement by deferring the account's use for several years while covering short-term medical expenses with other income. Follow these steps to set up an HSA account:
(See this article if your employer contributes to your HSA account.)
Create HSA Account(s)
Step 1: Go to My Plan > Accounts and Assets
Step 2: Open the Savings section
Step 3: Click on "Add an account +"
Step 4: Indicate that this is an HSA
Step 5: Decide if this is your account or your spouse's account
Step 6: Either link your account or enter details manually (we will be doing Manual Entry for this exercise)
Step 7: Enter an account name and balance. Enter a balance of $0 if you have yet to fund the account
Step 8: If your HSA is invested, enter optimistic and pessimistic growth rates. If your HSA is liquid, enter "0%" for growth rates
Step 9: Determine whether you will make contributions to the account. If yes, head over to Money Flows.
HSAs have contribution limits for individuals and families (contribution limits are not modeled in the tool).
HSAs must be used for medical expenses, excluding premiums to avoid income tax obligations (spending restrictions are not modeled in the tool).
While HSAs are excluded from Federal Tax obligations, some states tax HSA contributions (state-specific taxes on contributions are modeled in the tool while state-specific taxes on growth within these accounts are not).