HSA accounts are health savings accounts designed to provide tax incentives to people to save for medical expenses. The HSAs are similar to IRAs except instead of savings for retirement you save for medical expenses.
Requirements
To be eligible for an HSA you must be covered by a high-deductible health insurance plan (HDHI). HDHI plans have a deductible of at least $1,150 for individuals and $2,300 for family plans for 2009. These limits are adjusted annually.
Setting Up Account
Like IRAs, HSAs are offered by many financial institutions and the contributions can be put in a variety of investments, including stocks, mutual funds and certificates of deposit.
Contributing to the Account
The amount you can contribute to an account depends on whether it is a personal account or a family account. For 2009, you can contribute $3,000 to a personal account and $5,950 to a family account.
Tax Benefits
Contributions to your HSA can be deducted from your taxable income, grow tax free in the account and come out tax free when you withdraw the money to pay for medical expenses. If you use the money for other purposes, you must include it as income and pay a 10 percent penalty.
Considerations
You are not eligible to contribute to an HSA if you have medical insurance aside from a HDHI plan or medicare. However, there are no income restrictions that prevent people from participating.