There are many explanations of
Health Savings Accounts (HSAs) in the public domain. This one is from the U.S.
Department of the Treasury.
Source: http://www.ustreas.gov/offices/public-affairs/hsa/about.shtml
Health Savings Accounts (HSAs) were
created by Public Law 108-173, the "Medicare Prescription Drug,
Improvement and Modernization Act of 2003," signed into law by President
Bush on December 8, 2003. Health Savings Accounts will change the way millions
meet their health care needs because they are designed to help individuals save
for qualified medical and retiree health expenses on a tax-advantaged basis.
Any adult who is covered by a
high-deductible health plan (and has no other first-dollar coverage) may
establish an HSA. Tax-advantaged contributions can be made in three ways:
- the individual or family can make tax deductible
contributions to the HSA even if they do not itemize deductions;
- the individual’s employer can make contributions that
are not taxed to either the employer or the employee; and,
- employers sponsoring cafeteria plans can allow
employees to contribute untaxed salary through salary reduction.
To encourage saving for health expenses after
retirement, individuals age 55 and older are allowed to make additional
catch-up contributions to their HSAs. Once an individual enrolls in Medicare
they are no longer eligible to contribute to their HSA.
Amounts contributed to an HSA belong to the account holder and are completely
portable. Funds in the account can grow tax-free through investment earnings,
just like an IRA.
Funds distributed from the HSA are not taxed if they are used to pay qualified
medical expenses. Unlike amounts in Flexible Spending Arrangements that are
forfeited if not used by the end of the year, unused funds remain available for
use in later years.
