By Anne Kates Smith
Kiplinger's Personal Finance
Sunday, October 26, 2008

It's not too late to set up a health-savings account this year and contribute the maximum amount -- as long as you get moving by Dec. 1.

Health-savings accounts are tax-favored, individual accounts used in conjunction with qualified health-insurance policies that carry high deductibles. HSAs confer a triple tax break: You fund them with pretax earnings (or with contributions deductible from your taxable income), investment returns compound tax-free, and withdrawals are not taxed as long as you use the money for medical expenses. The number of HSA converts grew 36 percent last year, to more than 6 million.

New IRS regulations allow people who are eligible for an HSA on Dec. 1 to stash the full amount permitted for all of 2008 in their accounts -- up to $2,900 for an individual (add a catch-up contribution of another $900 if you're 55 or older) and $5,800 for a family. The catch: You must remain eligible for an HSA through 2009. (These deadlines assume taxpayers operate on a January-December taxable year.) Next year, the contribution ceiling will be raised to $3,000 for individuals (plus $1,000 in catch-up contributions) and $5,950 for families.

You're eligible for an HSA if you're younger than 65, aren't covered by another health-insurance policy, and purchase a high-deductible health plan on your own or through your employer. In 2008, deductibles have to be at least $1,100 for individuals or $2,200 for families, and out-of-pocket spending (including deductibles and co-payments but not premiums) can't exceed $5,600 for an individual or $11,200 for a family.