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How to find the right Health Savings Account

(MoneyWatch) High deductible health plans come with the option to open a Health Savings Account, or HSA. These special accounts allow participants to set aside pre-tax money into the account, which can later be used tax-free for qualified medical expenses. The best part is that unlike flexible spending accounts, or FSAs, unused money in health savings accounts can roll over without being forfeited.

The new, higher HSA contribution limit for 2013 is $3,250 for individuals with single coverage and $6,450 for people with family insurance plans. Folks age 55 and older can contribute an additional $1,000 over these limits. More than 13.5 million people now have HSAs with their high-deductible health plans, according to America's Health Insurance Plans, or AHIP. That's an increase of more than 2 million in the past year.

Money in an HSA can be held in a bank deposit account or invested in mutual funds similar to what you could do in an IRA. All withdrawals, including investment earnings, are tax-free when used to pay for qualifying medical expenses, such as deductibles and co-payments.

Larger employers may choose an HSA provider and dictate this as the only option for their employees. But when working for mid-size and smaller employers you can typically choose any HSA provider available. Selecting an HSA is a personal choice and you'll want to choose an HSA provider that suits your own individual needs.

Bank style HSAs

Since HSAs originally were designed to be used for modest deposits followed by frequent small withdrawals, most began as bank products, and thus most Health Savings Accounts offered today are from banks.

One of the most widely used bank account style HSAs is offered by HSA Bank. Other banks, such as Bank of America, also offer HSAs. But before you choose an HSA, make sure to consider its fees. Typical fees include monthly maintenance fee, over draft fees and fees for copies of statements. You might also want to check with your own bank as to see if there is an HSA product they offer.

Investment style HSAs

Once HSAs started to catch on and folks better understood the long term benefits, these began to be used as long term accumulation and investment accounts. As this took hold, other custodians developed HSAs designed primarily for investing and accumulation.

One of the more widely used investment style HSAs is offered by Millennium Trust.

Other firms such as Fidelity also offer these accounts. But the account is only available in connection with an employer sponsored plan, where individuals are participants of a plan sponsored by a company who does business with Fidelity in regards to benefits plans.

Whatever HSA product you decide to use, the decision should include a consideration of how you intend to use the HSA, its fees and the features for deposits, withdrawals, access, investment selection, etc.

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