Health Savings Accounts (HSAs)
Health Savings Accounts represent the biggest change in health and retirement care since Social Security and Medicare. More than 2 million Americans opened HSAs in just the first year they became available.
With traditional health insurance, you receive no financial rewards from your insurance carrier for being healthy and having no medical expenses. By contrast:
HSAs let you keep, tax-free, what you don't spend today and allow you to use it for your healthcare tomorrow, or for your retirement; and HSAs let you invest in your own health by shifting unspent sickness care dollars to wellness and preventative care.
An HSA commonly refers to a high deductible ($1,100 to $11,000) "HSA-qualified" health insurance policy, combined with an IRA- or 401(k)-type savings account— an account that you can use to pay wellness or sickness expenses not covered under your deductible.
HSA-qualified health insurance policies are available either through employer-sponsored plans or through individual/family policies.
HSAs vs. IRAs or 401(k)s
An HSA is a combination of the best features of an IRA and a 401(k). Like an IRA, you can make your own tax-deductible contributions, even up to April 15 of the following year.
And like a 401(k), your employer may also make his own tax-deductible contributions to your HSA, or match a percentage of what you contribute (saving your employer 7.53% in FICA + FUTA wage taxes).
But unlike an IRA or 401(k), you never pay income taxes on future withdrawals from your HSA for qualified medical expenses. With a traditional IRA or 401(k), you pay ordinary income taxes on every dollar you withdraw, even during retirement.
This is why you should not contribute even one more dollar to your traditional IRA, 401(k), or any other savings or brokerage account until you have first contributed the maximum amount allowed to your HSA.