The deadline is approaching to lower your 2017 tax bill by putting money into one of the best types of tax-sheltered accounts available to Americans: health savings accounts.
April 17, the deadline to file your 2017 tax return, is also the last chance to contribute money to an HSA for tax year 2017.
HSAs offer a combination of tax-reducing features that is unrivaled, even by retirement plans. So, all money-savvy folks should consider taking advantage of opportunities to stash cash in an HSA if they are eligible to do so.
What is a health savings account?
An HSA is an account in which you can deposit a certain amount of money each year that you can use to reimburse yourself for eligible medical expenses. You can use an HSA as either a savings account or an investment account — or both.
As we detail in “3 Bold Ways Retirees Can Cut Health Care Costs in 2018,” HSAs offer a trio of tax advantages:
- Contributions can be deducted from your taxes for the tax year during which contributions are made.
- Any gains on your contributions are tax-free.
- Withdrawals are tax-free when used to pay for qualifying health care expenses.
In other words, you will never owe taxes on money that goes through an HSA, provided that you follow the IRS rules for HSAs.
Who is eligible for a health saving account?
The bad news about HSAs is that not everyone is eligible for one. They’re designed for folks with high-deductible health insurance plans.
For the 2017 tax year, the IRS defines such plans as having annual deductibles of at least:
- $1,300 for coverage of yourself only (rising to $1,350 for 2018)
- $2,600 for family coverage (rising to $2,700 for 2018)
There are also a few other limitations on who can have an HSA. For example, folks on Medicare are ineligible.
For more tax tips — including other ways to keep more of your money out of Uncle Sam’s pockets — check out our 2018 tax season coverage.
What’s your take on or experience with health savings accounts? Let us know by commenting below or over on our Facebook page.