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A health savings account is a tax-sheltered savings account similar to an IRA, but mandated to go towards medical expenses. Deposits into health savings accounts are 100% tax-deductible for almost everyone with an HSA and can be easily withdrawn by check or debit card to pay for regular medical bills.
When it comes to larger medical expenses, these are covered by a low-cost, high deductible health insurance policy. Whatever you do not use from the health savings account each year stays there and builds interest to help supplement retirement. The health savings account is required to be used in conjunction with a separate health insurance policy that carries a high deductible.
Unlike many HMO and other health insurance plans, a health savings account allows you to choose your own physicians without extensive restrictions. The best course of action is to calculate your typical health insurance costs. Now, take that same amount of money and divide it between a lower cost policy and a health savings account. By using the HSA, you will not only need to spend less for everyday medical expenses, but it is all tax free.
|Jennifer Mathes, Ph.D.|