Special attention needs to be made about managing a HSA account.

Choosing a trustee for the account should be easy.  Most companies offering HSA insurance plans offer or suggest an account trustee.  Most banks and brokerages will begin to set up HSA's by the beginning of 2006.  For a current list of trustees go to HSAInsider.com

If you are on a tight budget, keep enough money in the HSA account the first few years to cover your deductible and any other out of pocket medical or dental expenses not covered by your health insurance plan. When you use your HSA for eligible expenditures, the money comes out tax free. In the first few years you might consider keeping the money in short term investments like a money fund or savings account. These accounts are safe and have very little volatility. It's a good idea to contact a personal investment advisor to develop a specific plan for your needs.

When sufficient funds are accumulated to cover a year or two of medical expenditures, think about moving some of the money into more risky, but more rewarding investments like stock and bonds.  Stocks have average returns far superior to savings accounts over time and make better long term investments. Be sure to contact your investment advisor to find out the best options for you.

Let's look at three different philosophies about withdrawing funds. 

1.  The first would be to withdraw funds on an as needed basis.  When you incur any qualified medical expenses, you automatically withdraw the money out of the HSA account to cover it.

2.  The second strategy would to make sure you always have enough money to cover the deductible on the health insurance plan.  In this case, you only submit receipts for expenses that will be applied to your health plan deductible.  You pay for other qualified expenses with other money, either using after-tax money or money from a flexible spending account set up by your employer for dental and other medical expenses not covered by your health insurance policy.  At the end of the year, if you have extra money in the HSA account, you add up your un reimbursed expenses and withdraw that amount of money from your HSA.  The benefit of this plan is that you'll always have enough money for your deductable for a catastrophic injury or illness.  If you make it through the year with out any huge health expenses then you can use the HSA for incidental medical expenses.

3.  The last strategy is the most intriguing and will take the most thought and advise from your financial advisor. This strategy entails using your HSA account as a vehicle for additional retirement savings and using after-tax dollars to cover your current medical expenses.  This strategy makes the most sense for people in a high income tax brackets who also have some extra money to invest for retirement.  The family would also have to have few current medical expenses or cash to cover

current expenses. The benefit of this system is that you have extra money for healthcare in your retirement years when you most likely will need it.  It also makes financial sense if you retire to a lower income bracket than you are currently in.

It is the responsibility of the HSA account owner to keep track of medical expenses and receipts.  The receipts are not sent in with your tax returns, but should be kept in case of audit.  For further information go to Eligible Expenses and Record Keeping.