By: Michael E. Martinez

Back in December of 2003, President Bush signed the Health Savings Account (HSA) legislation into act. The HSA acts just like an Individual Retirement Account (IRA) and is also tax-sheltered. It was designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

You can sign up for an HSA if you are not covered my health insurance, if you're not recieving Medicare and can't be claimed as a dependent on someone's tax returns. However, children can't establish their own Health Savings Accounts. There are no income limits on these and no required earned income limit.

You can make contributions to the account by writing a check or doing an automatic transfer from other accounts. Both employees and employers may make deposits to a HSA account, but the total of their deposits may not exceed that allowed by federal law. Employers may deposit as much or as little as they wish to an employee's account, but they may not discriminate in any way when making the deposits.

Employer contributions must be in the same dollar amount or same percentage of the employee's deductible for all employees in the same class. Employers can distinguish between full-time vs. part-time employees, and/or family vs. single coverage, but no other criteria of discrimination in determining contributions are allowed.

Funds not used in an HSA account carry over each year and remain in the account, unlike the old flexible spending where a person lost any money remaining at the end of the year. The money in the account is a personal asset of the individual who owns the account. If an individual changes their coverage so that it is no longer qualified, they may keep and use the account for expenses, but may not make deposits. Maximum annual deposits may not exceed the lesser of amount of the deductible or $2,700 for individuals and $5,450 for families in 2006.