HSA Health Savings Accounts
Most of the replies are talking about FSA's Flexible Spending Accounts. These are use it or lose it money that you have deducted pre-tax and there are real advantages to those.
But the original question was about HSA's Health Savings Accounts. To my way of thinking these are awesome. Usually very low premium, very high deductible - that's where the savings account comes in. Instead of paying the premium to the insurance company - bank it. It's your money - it is used towards the very high deductible, but then if you don't use it whatever you have banked is yours - you keep it in the HSA. If you are enrolling through an employer make sure that if you quit you can take your savings account with you - I believe the answer is always yes, but make sure. This money will accrue for as long as you contribute and can always be used to pay for a list of medical expenses. However, say year after year you allow for the high deductible (there is a limit to how much you can contribute), but year after year you do not spend what you are banking, at or after age 59 1/2 you can withdraw that money for non-medical same as you could from a 401k or IRA, that money would then be taxed as you withdraw for non-medical at that time. The idea is that you would begin to draw on the money in your retirement years when your income is lower and so then your tax bracket would be lower. The current tax benefit is that you lower your taxable income, and pay for medical expenses out of tax-free moneys. The other current benefit is that instead of giving the health insurer a large premium, you pay it to yourself. The later tax benefit is that when you want to begin to spend it on non-medical after 59 1/2 assuming you are retired and in a lower tax bracket then you will end up paying less tax than you would have during your working years. Also you are contributing towards your retirement fund. It's very cool!
