Some taxpayers can still knock $5,000 or more off their 2006 taxable income without giving up the use of their money until retirement. These are taxpayers who had a qualifying "High Deductible" health insurance plan during 2006, but who have not yet made a contribution to a Health Savings Account.
Health Savings Accounts work a bit like old-fashioned individual retirement accounts, or IRAs. You can deduct contributions to the accounts, but the earnings accumulate tax-free until withdrawal. But unlike IRAs, you can always withdraw earnings from an HSA tax-free to pay medical expenses not otherwise reimbursed by insurance. That means your earnings aren't locked away until retirement like IRA earnings are. If you don't use them for health expenses, you can withdraw the funds for retirement like IRA funds.
To contribute to an HSA for 2006, you need to have had a qualifying high-deductible health insurance plan in place during the year. This means an deductible of at least $1,050 for individual coverage or $2,100 for family coverage. The maximum deduction for single-coverage taxpayers is the lesser of $2,700 or the annual deductible; for family coverage taxpayers, the deduction caps out at the lesser of the deductible or $5,450.
Link: IRS discussion of HSAs
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