For most of us, building wealth consists of making regular deposits into some sort of savings vehicle over a long period of time, and taking advantage of the magic of compounding interest.
But – what if you could save even more money each year into vehicles that are tax deductible? Well, that’s just what an HSA does for you!
Like an IRA, the money that consumers set aside in their Health Savings Accounts can be invested in high-interest CDs, money markets, bonds, stocks, and more. However, contributions that consumers make to their Health Savings Accounts are tax deductible.
In order to have a Health Savings Account, participants need to be enrolled in qualifying high-deductible health insurance plans. There is a cap on maximum annual out-of-pocket expenses for these plans; for 2009, the maximum out-of-pocket amount for individual-coverage plans is $5,800 and $11,600 for family-coverage plans. The minimum out-of-pocket amount for a high-deductible health insurance plan for individual coverage is $1,150 and $2,300 for family coverage.
Health Savings Account participants should keep in mind that the funds they spend on healthcare expenses are tax-free. However, they can withdraw funds from their Health Savings Accounts at any time to use for other expenses. When they withdraw money to use for other expenses, the withdraw is tax-deferred, which means that they will only pay taxes on the money once they withdraw it, but will not need to pay taxes on the growth within the account.
