A majority of Americans are aware of 401(k) plans, 529 college savings and individual retirement accounts plans. However, a good tax accountant will point you to another effective instrument – the almost unknown health savings account (HSA).


Use of HSA


The HSA permits account holders to pay their current health care expenses. It also helps them save for the future. The principal advantage of HSA  is that it is tax deductible. If the payments are made via payroll deduction, they are considered pretax. Taxes will also not be imposed on the interest earned. Account holders may also withdraw amount for any qualified medical expenses without paying any tax. The list of qualified expenses include a majority of services offered by licensed healthcare providers, and also prescriptions and diagnostic devices. Acupuncture and treatment of substance-abuse are also included.


HSAs, unlike the flexible spending accounts in healthcare, which comes with maximum consecutive carry-over amounting to $500, have no limits imposed on carry-overs. There is also no restriction on how the funds will be utilized. Even if any account is opened via a program sponsored by an employer, all money within an HSA is the property of the account holder. A custodian or trustee will hold the accounts. Banks, brokerage firms, credit unions or insurance companies can act as custodians.


Tax accountants however, warn that even if there are appealing tax advantages, investors should not gloss over the role of the HSA to save for needed medical cases for the time after retirement. It is the time when healthcare expenses increase.


Tax shelter


Many people regard health savings accounts as a kind of tax shelter, which is true. Tax accountants know that it is a vehicle, which receives special preferential treatment that no other accounts get. It forms a method for individuals to put away the money. The HSA first saw the light of day with the 2003 Medicare Modernization Act and can be accessed by individuals covered under bigger deductible healthcare plans. As per the IRS, the list of deductible health plans include schemes with an yearly deductible of a minimum of $1,300, in case of self coverage or an amount of $2,600 for family coverage. When it comes to yearly out of budget expenses, the maximum should be $6,450 for personal use or $12,900 for  family coverage.


There is an increase in high deductible plans as employers are trying to take off healthcare expenses from the company. They want to shift it to the workers, which means that a greater number of Americans can gain eligibility for health savings accounts .