The Medicare overhaul of December 8, 2003, created new Health Savings Accounts (HSAs). These new individual trust accounts replace and expand the former Medical Savings Accounts (MSAs) which were limited in scope and never achieved the broad participation the government was hoping for. Like IRAs (Individual Retirement Accounts), HSAs allow those with high deductible health insurance policies (that have much lower premiums) to:
- Invest pre-tax income into a dedicated savings account for medical expenses.
- Withdraw contributions and earnings tax-free, if used for qualified medical expenses.
- Your contributions may be carried over year after year and continue to generate tax-free earnings.
- You can contribute to an HSA and still continue other pre-tax retirement savings plans like Traditional IRAs or 401(k)s.
- There are no annual income limits above which taxpayers are excluded.
- They are available for self-employed or employees (if your employer adopts an HSA plan).
- Contributions can be made by you or your employer (to seed the account at inception).
- HSAs are portable should you change employers.
HSAs are essentially another tax favored retirement savings account to set aside tax free funds for inevitable health care expenses now or in your retirement.
Ask your health insurance carrier or your employer about these new Health Savings Accounts. These plans are a new attempt to lower health insurance costs and allow health costs to be user-driven.
What is a High Deductible Plan?
For 2004, the deductible must be at least $1,000 for self-only coverage and $2,000 for family coverage. Maximum out-of-pocket expenses.
How Much Can You Contribute?