What is an Individual Health Savings Account?
Individual Health Savings Accounts are relatively new. They
were created by federal legislation in 2003, and let you save
money on both your health insurance and your income taxes. HSAs
are essentially tax-favored savings accounts, combined with qualified
high-deductible health insurance plans.
A High Deductible Health Plan is a self-funded insurance policy
that will cover your catastrophic medical expenses. This type
of plan can be paired with a tax-advantaged Health Savings Account,
which is simply a bank account that you can make tax-free withdrawals
from when you need to use the cash for qualified medical expenses.
The combination of a high-deductible health plan and
a HSA provides you with:
- Reliable, flexible and low-cost major medical protection
- Both immediate and long-tern tax benefits and savings
- A long-term investment vehicle
- Significant savings on your monthly insurance premiums
The Health Savings Account itself is essentially a healthcare-themed
IRA. The money you add to the account will be tax deductible,
and your account will earn tax-deferred interest. Annual contributions
will be limited to $5,250.00 (for family plan HSAs), $2,650.00
(for individual HSAs), or the annual deductible of your high-deductible
health insurance policy, whichever is lower.
You Decide How to Use Your Health Savings Account
If you decide to pay deductible healthcare costs or other medical
expenses out-of-pocket, the cash in your account will be free
to accumulate for use in the future on a tax advantaged basis.
In general, your unused funds will continue to accumulate tax-free
until you reach retirement, after which you’ll be able
to make withdrawals for any reason.
 |
