Health Savings Accounts & Health Reimbursement Arrangements
A Health Savings Account (HSA) is a special tax-advantaged savings account similar to a traditional Individual Retirement Account (IRA) but designated for medical expenses. An HSA allows consumers with high-deductible health insurance plans to pay and save for health care expenses on a tax-favored basis. The accounts provide triple-tax advantages because contributions, investment earnings and qualified distributions are exempt from federal income tax, FICA (Social Security and Medicare) tax and most state income taxes.
Unused HSA dollars roll over from year to year, making HSAs a convenient and easy way to save and invest for future medical expenses. Consumers own their HSAs at all times and can take it with them when they switch medical plans, change jobs or retire. That means funds, which can be invested, are non-forfeitable and portable.
A Health Reimbursement Arrangement (HRA) is a distinct defined contribution health care plan. HRAs, sponsored by the employer, mix the best facets of flexible spending and medical reimbursement accounts. HRAs help reduce health plan costs by combining reimbursement accounts with high-deductible base plans. Employees can carry over unused dollars with HRAs, which earn interest and can be ultimately available for medical expenses at retirement. Also, plans permit year-to-year accumulation without the use-it-or-lose-it limitations. Ask your employer if such accounts are available.
