Health Savings Accounts (HSAs)

When you purchase a health insurance plan, the wise move is to find the least expensive plan that will provide reliable coverage of your individual needs. For relatively healthy people who don't want to pay for more coverage than they're likely to need, a qualified high deductible health plan with Health Savings Account (HSA) is a perfect option.

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There are two components to an HSA plan a federally qualified high deductible health plan and a tax-sheltered Health Savings Account. While the high deductible health plan protects you from the massive medical bills that can accompany a serious accident or illness, the HSA houses tax-free funds you can use to pay for everyday medical expenses.

The financial benefits of an HSA are clear:

• You pay no income tax on the money you deposit into your HSA.
• You are not taxed on any interest or earnings credited to the account as long as any money you withdraw is used to pay for medical expenses (as defined by the IRS).
• Unlike money placed in flexible spending accounts, any HSA money you don't spend rolls over year to year for use in paying future medical expenses or supplementing your retirement income.
• At age 65, you can withdraw money from your HSA for non-medical expenses without penalty, paying only standard income tax.

Earmarking money for an HSA is easy. Since a high deductible health plan generally costs less than a conventional plan with a lower deductible, you can use the money you ll save by purchasing a high deductible plan.

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Eligibility

Anybody with a qualified high deductible health plan as his or her only major medical coverage may open and contribute to a Health Savings Account. Total contributions cannot exceed the IRS yearly maximum or the health plan deductible amount, whichever is less.

HSAs are permanent and portable, so regardless of your future employment situation, you can continue contributing to and using your HSA.

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