Health Savings Accounts, or “HSAs” , were created in 2003. Subject to statutory limits and restrictions, the account owner can make deductible contributions to his or her HSA. The HSA is tax-exempt, so the contributions can grow tax-free inside the HSA. The HSA balance may be withdrawn, tax-free, to pay the account owner’s medical expenses. Thus, the account owner can use the HSA to accumulate a tax-free source of funds to pay future health care costs. The HSA is intended to work in conjuction with a high deductible health care plan which covers the account owner at work.
The IRS has just released a brochure which provides a simple, easy to read explanantion of HSAs. The IRS also maintains, on its website, additional information on HSAs. The brochure is here, and the additional information is here