Health savings accounts, or HSAs, are a type of flexible spending plan that allow individuals with a high-deductible medical plan to save money for medical expenses, advises Kiplinger. However, not all high-deductible health policies allow HSA accounts.Continue Reading
To be considered high-deductible, plans must have a minimum deduction of $1,300 for individuals and $2,600 for families, as of 2015, advises Kiplinger.
Funds contributed to an HSA are not charged income tax and earn tax-free interest throughout the life of the account, states Kiplinger. Individuals can also withdraw funds tax-free to pay for medical expenses. However, if the funds are withdrawn for any other reason, withdrawals are subject to a 20 percent tax penalty.
Annual contributions to the HSA are limited to $3,350 for individuals and $6,650 for family accounts, states Kiplinger. Individuals over the age of 55 may contribute an additional $1,000 per year to the account. Funds continue to roll over and accumulate if they are not used for medical expenses.
When individuals turn 65 and enroll in Medicare, they may no longer contribute to the HSA, advises Kiplinger. However, they may make withdrawals for both medical and non-medical expenses at any time without penalty. Withdrawals for non-medical expenses are still subject to regular income tax rates.Learn more about Bank Accounts