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What is a Health Savings Account? Is it worthwhile to have one if you’re young and healthy?


A Health Savings Account is like a 401(k), but for medical care rather than retirement. Contributions by you or your employer are made with pretax dollars, so the amount you are out of pocket is reduced by your top tax rate, federal and state combined. If you contribute $1,000, for instance, and your top slice of income is taxed at 25 percent by the IRS and 7 percent by your state, the actual cost of putting aside that $1,000 for medical care is $680.
There’s some fine print in the rules. The maximum annual contribution is $3,050 for an individual or $6,150 for family coverage, and the funds must be held by a bank, brokerage or similar third party. The big catch is that to be eligible for an HSA, you must have a high-deductible health insurance policy – anything with a deductible between $1,200 and $5,950 for individuals and twice those amounts for a family. You can’t have any other health policy, either, whether it’s one that you buy yourself or that your employer provides. There are some exceptions, however, such as for dental or eye care.
As to whether you can make good use of an HSA if you’re young and healthy, some of the defining characteristics of the accounts do seem well suited to such people. A high-deductible insurance plan is economical and protects policyholders from catastrophic loss – either financial or medical – while letting them pay out of pocket whatever ordinary medical expenses may crop up.
If you decide to go with an HSA and you remain fit as a fiddle, knock wood, the money that you have contributed will stay in your account, earning returns tax free. It will be there when the day comes that you do need it, and if that day never comes before retirement, then you can start to withdraw it just as if it were an actual 401(k). For more information about HSAs, have a look at IRS Publication 969.
-Conrad de Aenlle