Health Savings Accounts Could Rival 401(k)

Physician's Money Digest, October 2006, Volume 13, Issue 10

Family Practice News

Family Practice News

Will health savings accounts (HSAs)help solve the problems of the uninsuredand underinsured? Well, the debate continues,along with new proposals. HSAs areaccounts that allow contributionsto be tax-free,and the money withdrawnfor covered medicalexpenses also to betax-free. According to,President Bush is proposingto allow any spending on outof-pocket health expenses incurredby HSA enrollees—up to $10,500 per family—to be tax-free. Under current law, onlyexpenses pertaining to the deductible aretax-free. White House officials quoted inthe magazine also say that the president"proposes making premiums for HSA-compatibleinsurance policies deductible fromincome taxes when purchased by individualsoutside of work." The additional taxcredit would make HSAs very appealing,and if both proposals are passed, HSAscould rival 401(k) plans. Payroll taxes areowed on 401(k) contributions, and whilethe same holds true for HSA contributions,HSAs would receive those tax credits.explains that if youcontribute that $10,500 to both accounts,the entire amount stays in an HSA, unlikethe $8893 that remains after a payroll taxin a 401(k). Over time, the HSA would havemore money. But experts do not feel thatemployers will drop their 401(k) offeringsbecause of it.