Health Savings Accounts

As nice as it is to take money out of a Roth IRA tax-free, there was no tax deduction back when that money went in. With the Health Savings Account (HSA), on the other hand, contributions are deductible and withdrawals used to pay medical expenses are tax-free.

The account receives favorable tax treatment and is tied to an insurance policy called a high deductible health plan (HDHP).

To be eligible for one of these accounts the individual can be covered under no other plan and must be below the eligibility age for Medicare. HSAs are owned by the individual, even though these plans are frequently offered through an employer. If an employee changes jobs, his HSA is portable it's his account.

There is no pressure to spend any amount of money from one's health savings account each year. Even if there is money in the account, the individual is not required to use the account to pay for medical expenses. Many people choose instead to pay expenses out-of-pocket and let the account balance continue to grow tax-deferred until they really need it in their golden years.


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