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Americans tend to be terrible savers -- 45% of adults have less than three months' worth of savings in case of emergencies. Most couldn’t cover a $1,000 medical emergency.

Enter the health savings account (HSA), a tax-advantaged account just for medical-related expenses. It’s designed to encourage users to put money aside for routine medical costs and those inevitable health care emergencies down the road.

HSAs are fairly new but they’re seeing a major surge in popularity. Here’s the rundown on how to get one and how to make your health savings work for you.

The benefits of an HSA

Invest your HSA to grow your savings tax-free
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Invest your HSA to grow your savings tax-free

To fund a health savings account, you deposit pre-tax money from your paycheck. Your employer may contribute additional funds toward your HSA.

Whatever money goes into your account will not be counted toward your taxable income — which can result in some sweet savings during tax season.

As long as the funds are used for eligible health costs, your HSA money can be withdrawn tax-free. You also can invest your savings into mutual funds or other tools that will help grow your money without any potential tax hit.

An HSA is similar to an FSA (flexible spending account), but it doesn’t expire at the end of the year, so your money is safe for the long haul.

How to qualify for an HSA

To qualify for an HSA, you need to be covered by a high-deductible health plan
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To qualify for an HSA, you need to be covered by a high-deductible health plan

In order to open an HSA, you must be insured under a high-deductible health plan.

What's "high"? These health insurance plans have out-of-pocket deductibles of at least $1,350 for individuals or $2,700 for families.

Most employers who provide high-deductible health plans also offer their workers the opportunity to open health savings accounts.

If your employer does not, you can open an HSA through a bank or an investment firm. Anyone can contribute to your new account, including other family members.

How to use an HSA

Your HSA savings can be used to cover things like service animal care
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Your HSA savings can be used to cover things like glasses and service animal care

Once your account is set up, you'll get separate checks or a debit card linked directly to your HSA funds. You can pay for the medical care upfront using the card or checks, or you can pay out of pocket and be reimbursed using the HSA later on.

Your HSA savings can cover your deductible and copays, as well as costs that insurance often doesn’t pay for, such as glasses, visits to a chiropractor, service animal care and breast pumps.

Note that HSA funds cannot cover insurance premiums or nonmedical bills. If you get caught attempting to use your HSA funds for anything other than eligible medical expenses, you'll have to pay tax on the withdrawal and could even be subject to a fine.

There are also annual caps on HSA savings. Individuals can deposit as much as $3,450 in 2018, and $3,500 in 2019. Contributions in family accounts are capped at $6,900 for 2018 and will be limited to $7,000 next year.

HSA holders age 55 and older are allowed to save an extra $1,000 per year. That's called a "catch-up contribution."

OK, what's the catch?

You'll need to keep records of your health spending on qualified expenses
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You'll need to keep records of your health spending on qualified expenses

Although the HSA has a lot of advantages, it may not work for everyone. You'll need to do a bit of record-keeping to prove you used your HSA account only for qualified medical expenses.

And, even with HSA money it can be difficult to meet a high deductible, plus there's no guarantee you'll be able to cover the full cost of medical expenses in an emergency.

Some bank HSAs charge a monthly or per-usage fee, which can be waived as long as you maintain a certain balance. This encourages users to keep their accounts well-funded, but it can deter people from spending their money when they need to.

Still, while an HSA may not be perfect, setting money aside for a medical emergency will put you in a much better place when and if the unexpected happens.

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