Any individual who is covered by a High-Deductible Health Plan(HDHP)* may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year).

Tax-advantaged contributions can be made in these ways:

Individual Health Plans

1. The individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions
2. A one-time rollover from an IRA is also allowed.
3. The individual's employer can make contributions that are not taxed to either the employer or the employee, and
4. Employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.
5. A one-time rollover from an IRA is also allowed.

Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses, expenses outlined in IRS Code Section 213(d) Eligible Medical Expenses .

To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($500 in 2004) to their HSAs. Individuals eligible for Medicare, may not open an HSA.

* HSAs must be linked to a high-deductible health insurance policy with a minimum $1,000 deducible for an individual or $2,000 for a family.

Links:

United States Department of Treasury Q&A's about HSA's
http://www.ustreas.gov/offices/public-affairs/hsa/faq.shtml