A new survey from Bankrate.com found that just 8 percent of those polled have a Health Savings Account, but 50 percent would likely use one to cut their taxes. What stands between them and a reduction in their tax bill? Knowledge.
Nearly 90 percent said they don't know the eligibility requirements for an HSA, and half incorrectly think they can use an HSA to pay for over-the-counter medications or health insurance premiums.
Here's what you need to know: An HSA is a tax-advantaged savings account designed to be used only in conjunction with a high-deductible health plan, based on guidelines set by the IRS. This year, individuals may contribute $3,300 and families $6,550, and those 55 and older, $1,000 extra. You can start your research at hsacenter.com.
What makes them attractive? Individual contributions are tax-deductible up to the allowable limit. Funds withdrawn are tax-free if used to pay for qualified medical expenses such as prescription medicines, home care and dental treatment.
The accounts are portable, so you don't have to worry if you change jobs or insurance providers, explains Lisa Holland, senior vice president, retail for TD Bank in Melville.
Another plus: Account funds roll over from year to year, unlike with Flexible Spending Accounts.
However, warns Steve Jackson, senior vice president of PrimePay, a benefits provider, "If you use the money for nonmedical expenses, you'll get hit with a 20 percent penalty and income taxes."