MSAs a Sweet Deal

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If an IRA looked attractive before, the deal that was recently wrapped up into the Medicare prescription benefit bill passed by Congress at the end of last year just may be irresistable. A recent Reuters article, Medical Savings Accounts Get Better highlights legislation that established new tax-deductible savings accounts called Healthcare Savings Accounts (HSAs), which are Medical Savings Accounts (MSAs) with some beefed up savings features.

What makes the HSA so attractive as a retirement vehicle is that all contributions to the account are fully tax deductible, and if the money is used for health-care purposes, it remains tax-free forever. If the account isn't drained at the end of the year, it just rolls over, so you can make maximum contributions each year ($2,600 as an individual; $5,150 as a family, and an additional $500 per month if you're over 55) and reap the benefits of saving hard-earned cash for retirement tax-free. And for the self-empoyed, there's another advantage -- you can set up a company and deduct contributions as a business expense.

Purchasing affordable health insurance has always been a struggle for the self-employed. If you're not caustrophically ill or emergency room prone, an HSA can do double duty for you by helping you manage health-care costs and save for retirement. But don't jump at the first one you find. The Reuters' article notes that by Q3 2004, competition will have ramped up, and your shopping options will be plentiful.

And if you're interested in a new cost-saving option for business owners, check out Passing the Buck by Alison Stein Wellner, in the January 2004 issue of Inc.. In it she explains how health reimbursement accounts (HRAs) are helping employers reduce premiums by passing the responsibility of managing health-care expenses onto employees.