The Basics of an HSA
A Savings / Investment Account
The HSA is a investment account into which the employee contributes directly from his/her paycheck. The HSA contributions are made using pre-tax dollars, those dollars then grow tax free in your HSA, and come out tax-free upon withdrawal for approved medical expenses. This means you do not pay any tax on your medical expenses.
If You Don’t Need it, It Grows
If you do not spend all of your contributions for the year, the HSA balance rolls over to the next year and continues to accumulate. It can remain there indefinitely, growing and accruing tax free without restriction. Once you reach the age of 65, the money can be spent at will; the medical expenses restriction is lifted.
Retirement Bucket of Income
The HSA is actually another potential vehicle for retirement monies, along with the traditional and new Roth 401(k) accounts. If you do not spend much annually on healthcare, then most of your contribution for that year, and other low spending years, will accumulate and grow tax free in your HSA until retirement.
High Deductible Health Plan
The HSA must be used in conjunction with the High Deductible Health Insurance Plan. Generally, the High Deductible Health Insurance Plan has a lower premium than a standard health insurance plan, and higher deductibles to meet if healthcare is required. Once the deductibles are met, the two types of insurance plans function the same.
Keep More of What You Spend
The money you save from lower monthly premiums with the High Deductible Plan can be set aside in the HSA in order to pay for qualified medical expenses up to your deductible and co-pay limit. So the most you will pay out from your HSA on any given year is the amount of your deductible and co-pay up to the out-of-pocket limit.
Amway’s Contribution is Big
The really exciting news is that Amway will be seeding your HSA with $2000 on January 1, 2012 if you choose the Consumers Plan plan. You may then add your contributions to the account until you reach your annual limit of $3,100 for an individual and $6,250 for a family in 2012.