If you are in good health, you may rarely think about the money you spend on doctors and medicine throughout the year. But if you keep track and add it all up, youll notice that you are spending more than you thought. You may be eligible for a tax-favored savings plan to help with paying for qualified medical expenses.

In 2003, the Health Savings Account (HSA) program was created for those who are covered by high-deductible health insurance policies and do not qualify for Medicare. High-deductible plans are those with an annual deductible of $1,000 or more and $2,000 or more for family coverage. You must also only have one health insurance provider.

The HSA is an account through a bank or health insurance company that you can make contributions to every year. The funds can be used to pay for health expenses for you, your spouse and dependents. HSAs can be used to cover certain medical expenses that are not covered by your insurance company. These include: doctor visits, prescription drugs, over-the-counter drugs and long term care insurance. You can even use the funds to pay for your health insurance deductible and COBRA benefits. If you find yourself unemployed, you can use the account to pay for your insurance premiums.

There are many tax benefits that equal savings for you through HSAs. All of the money you contribute to your HSA is tax-deductible up to the amount of the policy deductible. You dont even have to itemize your expenses. All interest and investment earnings on the account are not taxable. Money that you have in your HSA is growing tax-free. By using your HSA funds to pay for qualified medical expenses, you are using money that will not be taxed on your income.

You are allowed to deposit yearly the amount equal to your health insurance deductible. For example, if you have a deductible of $1,000, you can deposit $1,000 in your account. There is a limit to how much you can write-off on your taxes. The amount cannot exceed $2,600 for individuals and $5,150 for families. The money you deposit in your HSA must only come from cash, not from stocks or IRAs.

The funds in your HSA can be used any time, there is no time limit. The unused balance at the years end is simply carried over, accruing tax-free investment earnings. Your money belongs to you, and is in no way connected to your employment. You can change jobs or retire without loosing your HSA benefits. If you die, the money will go to your beneficiary. A spouse can continue to use the account for tax free medical expenses.

Lets take a look at Bill. He has an adjusted gross income of $40,000. After being taxed on $40,000, he has approximately $31,400 left. He has $2,000 of medical expenses throughout the year. That leaves him with $29,400 of available income.

Lets say Bill has an HSA and an insurance deductible of $2,000 (as to leave things nice and even). He contributed his full $2,000 to the account this year. Remember that he has an income of $40,000. He will be taxed for the $40,000 minus his $2,000 of medical expenses from his HSA, for a total of $38,000. After taxes he will have approximately $30,152 of available income. That is a total savings of $752 for the year!

Okay, it may seem complicated, so just remember you are paying for medical expenses with non-taxed money. Money that isnt taxed is more than that which is taxed. An HSA can help you to save money throughout the year on many expenses that are not covered by your insurance. And remember, every penny saved gets you closer to a successful financial future.