Health Savings Accounts HSA
Health Savings Accounts are great news for Americans!
U.S. Congress passed a law, effective January 1, 2004, which provides broad access to Health Savings Accounts - HSA, which allow consumers to pay for qualified medical expenses with pre-tax dollars (income-tax free!) and save for retirement on a tax-deferred basis.
What is an HSA? A HSA is a tax-favored saving account that is used in conjunction with a high-deductible HSA-eligible health insurance plan to make healthcare more affordable and to save for retirement HSAs are similar to an IRA but with some additional advantages.
- Pre-tax money is deposited each year into an HSA and can be easily withdrawn at any time with no penalty or taxes to pay for qualified medical expenses. Withdrawals can also be made for non-medical purposes, but will be taxed as normal income and are subject to a 10 percent penalty if done prior to age 65.
- Any HSA funds not used each year remain in the account, and earn interest tax-free to supplement medical expenses in the future.
- Like an IRA, the account belongs to you, not your employer. But unlike an IRA, your employer Can contribute to your HSA.
In order to have a Health Savings Account, you must get an HSA-eligible health insurance plan. This type of insurance plan is often referred to as a High Deductible Health Plan, and is typically less expensive than plans with lower deductibles.
A health insurance plan must meet the following criteria to be considered HSA-eligible:
- The health insurance plan must have an annual deductible of at least $1,000 for individuals and at least $2,000 for families.
- The sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than premiums) does not exceed $5,000 for individuals and $10,000 for families.
More information about Health Savings Accounts, and what you need to know about them before making a decision.