Health Savings Accounts – Investing For a Healthy Future

Most of us at one time or another have had a savings account at a bank. Health savings accounts are not that much different. A health savings account is a tax free medical saving account. Health savings accounts are always associated with high deductible health plans . With a high deductible health plan, your annual deductibles are high but the monthly premiums are low. The health savings accounts make it possible to set money aside and then use it whenever needed for your medical expenses.

Health savings accounts are fairly new to the insurance scene. In December of 2003, President Bush signed the Medicare Prescription Drug Improvement and   Act. This law was intended to help businesses save money on skyrocketing health insurance costs by allocating a greater portion of the cost to employees. In turn, an employee would pay lower monthly premiums but was responsible for much higher deductibles before health insurance coverage would kick in. In effect, you are self-insured up to your deductible for each year that you are enrolled in a Previously, medical savings accounts were available only to small businesses and the self-employed. Health savings accounts are available to anyone under the age of 65.

The earlier medical savings accounts were tax free but did not allow for any type of investing. Not only are the   health savings accounts tax-free, the assets from the accounts can be invested. This makes high deductible insurance plans an affordable and possibly lucrative option. You are allowed to set aside tax-free dollars now to guard against future health issues. If you enjoy good health and don’t need to use the money, your overall financial health will improve as well!

There is also another type of savings account applicable to medical expenses. A health care flexible spending account ( ) is somewhat like a heath savings account but there are differences. One of the biggest differences is the amount of money that can be placed in them each year. With a flexible spending account there is no cap on the amount of money that can be contributed to the account unless your employer or insurance company sets one. Flexible savings account may sound like the better deal but if you are looking for flexibility it’s really not. The money you set aside in a flexible spending account can only be used for qualified medical, dental, vision or prescription expenses or any health-related expense that your health insurance policy does not cover. In addition,   funds must be spent each year or you forfeit any remaining balance. Thus, to  the tax savings benefits of a  , you need to be pretty accurate in determining your medical expenses from year to year.

For health savings accounts, you can contribute up to the lesser of your   deductible or the amounts set by the Internal Revenue Service. For 2006, the IRS limits are $2,700 for individuals and $5,450 for family coverage. Taxpayers over 55 years old can contribute an additional catch-up amount of $700 for 2006. The money you place into a health savings account can be used for any medical expenditure and can be rolled over from year-to-year and from job-to-job. Withdrawals for non-medical purposes are taxed and carry a 10% penalty for taxpayers under age 65 years. After age 65, non-medical withdrawals are taxed without the penalty.

Health savings accounts can be a great option for some people. Coupled with the right high deductible insurance policy, a health savings plan can be the perfect medical insurance solution for those seeking lower premium costs without sacrificing adequate health insurance coverage. The fact that with a health savings account you can invest your contributions tax-free makes a health savings account an almost perfect solution. While not for everyone, if you’re in good health, with a longer span of time before retirement age and do not need costly ongoing prescription medicines, a  may be your best choice.

Denise  is the webmaster for  Before you sign up for any insurance policy, visit   for more tips and resources for getting the best health insurance policy.



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