The HSA in a nutshell

Jan 26 2012 - 12:02am

The HSA is a savings account for out-of-pocket medical expenses. Created in 2003 to incentivize self-managed health care, it is meant to be used in conjunction with a high deductible health plan (with a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage).

The HSA works like an IRA. Contributions are tax-deductible, and the funds are tax-free when used for qualified medical expenses. At retirement age, the money in the account is yours for medical or nonmedical expenses (when used for nonmedical expenses, it's considered taxable income).

Most HSAs are interest-bearing accounts, often with a better yield than standard savings accounts. Earned interest grows in the account tax-free.

HSA contributions can be made up to the annual IRS limit: $3,100 for individual plans and $6,250 for family plans in 2012. If you're over age 55, you can make an additional catch-up contribution of $1,000 this year.

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