What's the distinction in the middle of an Hsa and an Hra?

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An Hsa - a "healthcare savings account" - is healing and retirement planning savings inventory that can be used on a tax-advantaged basis. Hsas were created in Medicare Modernization legislation passed in December 2003. To be eligible for an Hsa, a buyer must be covered by a high deductible health plan (Hdhp).

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By contrast, an Hra - a "healthcare reimbursement account" is an inventory maintained by an employer to be used to reimburse employees for qualified healing expenses. Hsa accounts must be funded before they're used, but Hras don't need to be. Using an Hra, an employer can simply pay the healing expenses as they're incurred.

Hsa accounts belong to the private employees and are fully portable; in other words, employees can take the accounts with them if they leave an employer. Hra accounts belong to the employer. Each laborer gets an each year funds of dollars and unused funds roll over from year to year as long as the laborer continues in good standing. Typically, an laborer forfeits the money in an Hra inventory if they leave the employer.

An Hsa can be funded by either the employer or the laborer (or, often: both). An Hra may only be funded by the employer.

All qualified contributions into an Hsa are tax-free. If the employer contributes, then such contributions aren't treated as part of the employee's income, and are therefore tax-advantaged. If the employees makes contributions, these can be deducted from the employee's earnings when tax returns are filed.

Here's the best part: not only are deposits into Hsas tax-free... So are withdrawals. Any distribution from an Hsa for qualified healing expenses is tax-free. Hsas are typically managed much like an Ira: that is, there are a range of venture vehicles that the buyer can put his or her money into, so that it might aggregate and grow while it's waiting to be used for healing needs. The exact investments available to a buyer vary depending on the firm offering the Hsa. As we said before, like an Ira a Hsa belongs to the private and is portable.

Consumers can make withdrawals from Hsas for non-medical purposes after the age of 65 but the withdrawals (aka "distributions") are treated as earnings and taxed accordingly. Distributions for non-medical purposes made before the age of 65 are treated as an early distribution and field to an early retirement penalty of 10% plus quarterly earnings tax.

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