Health Savings Accounts
Health Savings Accounts are a new option for health insurance and are designed to help individuals save for qualified medical and retirement health expenses as well as for businesses to be able to provide affordable health insurance plans with income tax benefits. The HSA consists of two parts: (1) a qualified, high-deductible health insurance policy (HDHP) that covers substantial medical expenses, and (2) a savings or investment account from which one can withdraw money tax-free for qualified medical expenses.
Any adult who is covered by a qualified high-deductible health plan (and is not covered by any other plan that provides any of the benefits of the qualified HDHP) may establish an HSA.
HSAs are portable; the account can travel with an employee from job to job.
Funds can accumulate without the annual use-it-or-lose-it requirement of a Flexible Spending Account, enabling contributions and earnings to accrue tax-free, just like an Individual Retirement Account (IRA).
Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses.
Funds that are not used for qualified medical expenses can accumulate with tax-free interest until retirement (age 65), upon which one can withdraw for any purpose and funds are considered regular income.
To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs.