What Are Health Savings Accounts and Why Are They Attractive as Tax Shelters?
Established by the 2003 Medicare drug legislation, Health Savings Accounts (HSAs) are accounts in which individuals with a high-deductible health insurance policy can save money to pay for out-of-pocket health expenses. In tax year 2008, someone who enrolls in a health plan with a deductible of at least $1,100 for individual coverage and $2,200 for family coverage may establish an HSA. HSA contributions are tax deductible. In 2008, individuals may contribute up to $2,900 for individual coverage and $5,800 for family coverage. These tax-preferred contributions may be placed in stocks, bonds, or other investment vehicles, with the earnings accruing tax free. Withdrawals also are tax exempt if used for out-of-pocket medical costs. HSAs thus have a unique tax structure. No other savings vehicle in the federal tax code offers both tax-deductible contributions and tax-free withdrawals, as HSAs do. Moreover, because the value of a tax deduction rises with an individual’s tax bracket, HSAs pro
