HSAs, FSAs, HRAs, MSAs Overview
Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The MMA was signed into law on December 8, 2003. HSAs are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.
Generally, you must be covered by a high-deductible health plan (HDHP) to be eligible to establish and contribute to a Health Savings Account. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent remains in the account and can accrue interest, tax-free--just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year).
Tax-advantaged contributions can be made in three ways:
- The individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions,
- The individual’s employer can make contributions that are not taxed to either the employer or the employee, and
- Employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.
Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses. To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions (see below) to their HSAs. Individuals eligible for Medicare may not open an HSA.
Health Savings Accounts Limits