TAX BREAKS: Medical Expenses and Health Savings Accounts

Use the funds the year
without penalty.

If you have a high-deductible health insurance plan, there’s another option (aside from FSA or Flex-Spending) in the alphabet soup of savings accounts that might help you save on medical costs: a health savings account (HSA). A high-deductible health insurance plan means that the amounts you are required to pay out of pocket – on top of premiums – meet certain thresholds. For 2014, those are $1,250 for an individual or $2,500 for a family.

Under the terms of the HSA, you can contribute pre-tax dollars (directly from your paycheck) of up to $3,300 a year for an individual or $6,550 for a family into the account (for those 55 and older, the contribution limits are up to $4,300 for an individual and $7,550 for a family).

You can withdraw these funds tax-free so long as you use them for qualifying medical expenses.

Unlike the FSA, the HSA is not a use it or lose it account: the funds simply roll over at the end of the year. You can use the funds the next year without penalty – and you can top it up – so there’s no guesswork involved in funding.

READ MORE >> FORBES.COM: "Back to School 2014: Medical Expenses and Health Savings Accounts"

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