Health savings accounts (HSAs) offer some very attractive tax advantages for those who participate:
Contributions are
deductible
from federal income taxes and some state taxes.
Earnings in the account accumulate tax-free.
Distributions are tax-free if they’re used for qualified medical expenses.
In fact, you can think of the HSA as a kind of
IRA
for your health. It’s
portable,
so you can take it with you if you leave your job, change marital or tax status, or switch health plans. In fact, if you switch to a health plan that doesn’t qualify for HSA contributions, you can continue to use any money from your prior contributions and any earnings on those contributions for your medical expenses, tax free. You may not, however, continue to make contributions to your HSA.
Are you eligible?
No matter what your income level, you can open and contribute to an HSA, as long as you meet the following criteria:
You’re enrolled in a qualified HDHP.
You don’t have first-dollar medical coverage under any other health plan (although your spouse is allowed to have first-dollar coverage).
You can’t be claimed as a dependent on anyone else’s tax return, so children can’t establish their own HSAs.
Spouses can establish their own HSAs if eligible.
State of conflict
States regulate the insurance industry, and currently some states mandate that health insurers provide first-dollar coverage. Having first-dollar coverage disqualifies you from opening an HSA, but the states are investigating ways to provide an exception for HDHPs.
