Let’s see how an HSA can help you save on taxes and put money away for future medical expenses. Let's meet Mark.

About Mark*
Mark is single and in his 30s. He's a pretty healthy guy. Eats right. Exercises. While he has asthma, he can control it with prescription drugs. Last year, Mark had an annual physical and he didn't need to see a doctor for any other reason.

Mark's Health Plan and Health Expenses
Mark has health insurance through his employer. He chose the high-deductible health plan. This plan covers 100% of preventive care, so his annual physical is covered.

The plan has a $1,500 annual deductible for most other medical needs. So, Mark has to pay out-of-pocket for his prescriptions or expenses if he gets sick or injured.

Once he meets his deductible, he's responsible for 10% of his health care costs until he reaches the plan's out-of-pocket maximum of $5,000. That 10% is called co-insurance, which is a way people share costs with their health plans.

Last year Mark's prescription drugs cost a total of $3,000. He paid $1,650 (his deductible plus $150 for coinsurance).  He didn't need to see a doctor for anything else.

Mark's HSA
Because Mark chose a high-deductible health plan, he was eligible to open an HSA. He decided to contribute a total of $2,000 to his HSA, based on what he thought his prescription costs might be and a little extra. Mark arranged to have his contributions deducted from his paycheck — about $76 per check.

Here's how Mark’s HSA helped him save on taxes:

• He’s in the 25 percent federal tax bracket, so he saved $500 in federal income taxes.
• He lives in a state with a 5 percent income tax, so he saved $100 in state income taxes.
• He saved on Social Security and Medicare taxes — known as FICA** — at a rate of 5.65 percent. That contributes another $113 in savings.
• Mark’s total tax savings were $713.

Here’s how Mark’s HSA helped him plan and pay:

• He used $1,650 to pay for his asthma medications.
• He had about $350 left in his account for future health care expenses.

* Hypothetical example is for illustrative purposes only. All events, persons and results described herein are entirely fictitious and amounts will vary depending on your unique circumstances. Any resemblance to real events or persons, living or dead, is purely coincidental.  Current rates are variable and may change at any time.

**The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 lowered the employee tax rate for Social Security to 4.2% bringing the FICA (Social Security plus Medicare tax) rate to 5.65% on gross earnings up to $106,800.

States can choose to follow the federal tax treatment guidelines for health savings accounts (HSAs) or establish their own. Some states have chosen to tax HSA contributions. Talk to your financial advisor or consult your state department of revenue for more information.