An HSA is a Health Savings Account, which allows Americans to save pre-tax money for health related expenses. Today, many families are taking advantage of this option because of the various advantages including tax advantages, plan portability and the roll over ability.
HSAs were created by the Medicare bill signed in 2003. Individuals who choose to participate contribute a certain amount of every paycheck into an HSA account. This money is tax-free, meaning there are no taxes taken out of the contribution amount. There is no withdrawal tax as long as the withdrawal is use for medical expenses, and money contributed can be used as a tax deduction the following year. Beginning at age 65, HSA participants may withdraw unused HSA funds as regular income without incurring tax penalties
HSA plans are not company-specific, meaning you can use your HSA to pay any doctor in any office. Because the premiums are lower for high deductible health plans, an HSA helps you to cover your deductible if necessary, while keeping your monthly premiums low. Because your HSA is owned by you, and not a company, it can be used when and where you see fit.
Money remaining in the HSA account at the end of the year rolls over to the following year, allowing you to save for the future in years when you didn’t have any large medical expenses.
Using an HSA:
The money contributed is tax-free, allowing eligible individuals to save for qualified medical and retirement health expenses. Some individuals use this money for routine physical exams, while others use it to meet their deductible, or pay for elective procedures such as laser eye surgery, stop-smoking programs, long-term care, etc.
In order to establish an HSA, you must meet a few minimum qualifications. The list below details the characteristics of an HSA-qualified high deductible health plan:
Minimum deductible of $1,050 for self-only coverage or $2,100 for family coverage.
Maximum out-of-pocket limit (including deductibles and co-pays) of $5,250 for self-only coverage and $10,500 for family coverage. Higher out-of-pocket (co-pays and co-insurance) is allowed for out-of-network care
Preventive care may have first dollar coverage
Co-pays may be applied to preventive care
The most important thing to look for is the words "Qualifying High Deductible Health Plan" or a reference to IRC Section 223 in the declaration page of your insurance policy. This tells you that your plan qualifies for an HSA and you can start contributing tax free today.