Contributions to a Health Savings Account (HSA) are used to pay current of future medical expenses of the account owner, his or her spouse, and any qualified dependents.  Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a high deductible health plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.  In general HDHP’s will have lower premiums helping you to lower the cost of your health care.

For calendar year 2013, a qualifying HDHP must have a deductible of at least $1,250 (up $50 from 2012) for self-only coverage or $2,500 (up $100 form 2012) for family coverage. and must limit annual out-of-pocket expenses of the beneficiary to $6,250 for self-only coverage and $12,500 for family coverage.

The amount an individual can contribute to the HSA is a maximum of $3,250 for self-only coverage and $6,250 for family coverage.  These contributions can be made pre tax by an employer or are tax deductible if made yourself.

The funds in the HSA can be withdrawn to pay medical expenses or they can be allowed to accumulate tax free and the earnings can accumulate tax free.  Like an IRA, the funds belong to the individual and stay with the participant even after a job change or retirement.   After retirement, the funds can be used to pay medical expenses or treated like a retirement account.

An HSA can be a great way to supplement your retirement planning and over several years accumulate a significant amount of money in addition to providing a tax free way to pay medical expenses.  It is strongly recommended that anyone who has the opportunity maximize the contributions to their HSA.   We often recommend that people pay their medical expenses from other funds if possible to allow the HSA to continue to build.