About Health Savings Accounts

Just about everyone wants to save money on medical expenses. Consider opening a health savings account (HSA) to pay for qualified medical expenses not covered by your health insurance plan. If you are eligible, open and contribute to the account regularly, and you will enjoy a number of cost saving benefits. When you meet certain requirements, you may open a health savings account whether you are self-employed or you work for an employer.

Identification

A health savings account is similar to an individual retirement account (IRA) in that it is set up at a bank, with an insurance company or with another financial institution that acts as your account trustee. Contributions to the account may be withdrawn and used for qualified medical expenses or left to grow tax deferred.

Qualifications

In order to set up a health savings account, you must already be enrolled in a high deductible health insurance plan. A single person must participate in a plan with a yearly deductible of at least $1,100, and a family needs a deductible of at least $2,200. Your total yearly out-of-pocket medical costs cannot exceed $5,600 if you are single or $11,200 if you are part of a family. Personal health-related costs may include co-payments and deductibles. Unless you are age 65 or older, the cost of insurance premiums is not considered an out-of-pocket cost.

Contribtutions

Single individuals may contribute up to $2,900 per year to an HSA, and a family is eligible to add $5,800 each year. If you are 55 years old or older, you may contribute an additional $1,000 per year. You may not contribute to an HSA after age 65, but you may use money in the account for medical purposes. If you use the funds for non-medical costs after age 65, you may pay income tax on the withdrawals.

Considerations

You may contribute to an IRA in addition to a health savings account. There are no income limitations associated with setting up or contributing to a health savings account. As long as you are enrolled in an appropriate health insurance plan, you may contribute to an HSA no matter how much income you have.

Benefits

If you contribute to your own health savings account with post-tax dollars, your contributions are tax deductible even if you take the standard deduction on your tax return. In contrast to medical flexible-spending accounts, which require you to "use or lose" account funds each year, unused HSA contributions can be accumulated indefinitely until you withdraw them. If you change jobs, your health savings account travels with you to your new employer.

Resources

• IRS information on health savings accounts