Health savings account

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Health Savings Account

A form of health insurance in which a policyholder makes tax-free contributions to a special account that can be used for present and future medical expenses. Health savings accounts may be purchased individually or through an employer, but, in order to qualify for one, a policyholder must have an insurance policy with a high deductible. A health savings account may be used in order to offset the high deductible on one's other insurance policy. One does not pay taxes on withdrawals from a health savings account, unless one withdraws funds for a non-medical reason, in which case there may also be a penalty, depending on the age of the policyholder.

Health savings account (HSA).

A health savings account is designed to accumulate tax-free assets to pay current and future healthcare expenses. To open an HSA, you must have a qualifying high deductible health plan (HDHP) either through your employer or as an individual.

If you have an employer's plan, your contributions to the HSA are made with pretax income, and your employer may contribute as well. If you have an individual plan, you may deduct your contributions in calculating your adjusted gross income (AGI).

Congress sets an annual limit on the amount you can contribute to an HSA, which you set up with a financial institution such as a bank, brokerage firm, insurance company, or mutual fund company that offers these accounts.

No tax is due on money you withdraw from the HSA to pay qualified medical expenses such as doctor's visits, hospital care, eyeglasses, dental care, and medications for yourself, your spouse, and your dependants.

Any money that's left over in your HSA at the end of the year is rolled over and continues to accumulate tax-free earnings, which you can use for future healthcare costs.

Once you're 65, you can use the money in the HSA for non-medical expenses without paying a penalty, but you'll owe income taxes on those withdrawals. If you are younger than 65, you can also spend from your HSA on non-medical expenses, but you'll owe income taxes plus a 10% tax penalty on the amount you take out.

References in periodicals archive ?
House joined with Republicans to support health savings account program improvement measures.
To open a health savings account, a Power Financial employee must be enrolled in the high-deductible health plan.
Even after the owner of a Health Savings Account is no longer covered by a High Deductible Health Plan, money in the account continues to be tax-free as long as it is used for medical expenses.
Glied SA and Remler DK The Effect of Health Savings Accounts on Health Insurance Coverage.
Money deposited into a health savings account is tax deductible--the earnings on the deposit are tax-free and withdrawals for medical expenses are tax-free.
Created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Health Savings Account (HSA) offers advantages over other savings vehicles--it is not limited to employees of small businesses and the self-employed, the unspent balance rolls over at year-end for further use, and the account is portable because it is owned by the individual.
are eligible to participate in the company's new consumer-directed health plan based on the health savings account.
Nearly three-quarters of the respondents said that it was very likely or somewhat likely that they would offer a high-deductible health plan along with a health savings account by 2006.
Nearly three-quarters of the respondents said it was very likely or somewhat likely that they would offer a high-deductible health plan with a health savings account by 2006.

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