Consider an HSA if You Need a Last-Minute Tax Bill Reduction

·2 min read
Pra-chid / Getty Images/iStockphoto
Pra-chid / Getty Images/iStockphoto

Before May 17, you can still reduce your tax bill by contributing to a health savings account.

See: Last-Minute Tax Tips To Save You Money
Find: How To Use Your IRA as a Last-Minute Tax Deduction

Health savings accounts are created as a way to contribute pre-tax dollars for current or future medical expenses. If you contribute to a plan for yourself, the limit is $3,500; for a family it is up to $7,100.

HSAs are one of the most unique accounts offered, as there is a three-way tax break. The contribution is made before you pay taxes, it can grow tax-free and any distribution you take from the account (qualified of course) is also tax-free. The government allows this to incentivize people to save for their healthcare, which in the end draws less on Medicaid.

CNBC reports that there is an “above-the-line” tax break for HSA contributions, which for filers who don’t itemize deductions can help reduce adjusted gross income.

There is still time to contribute to an HSA before the May 17 deadline.

One of the biggest advantages to HSAs is that the money can roll over. Should you not need the funds in the near future, you can save the money in the account for medical expenses in retirement. The money is invested in the market, and the longer it is left in the account, accrues value.

See: 10 Jobs That Grant You These Unique Tax Deductions
Find: How To Protect Your Tax Refund From Being Stolen

If people are near the threshold of an income tax bracket, a useful trick is to use HSAs to bring down their income to a level that makes them eligible for less income tax. This way you are using pre-tax income as a savings mechanism while still reaping the benefits of a possible higher tax return.

There are some downsides to owning an HSA that investors should be aware of. You must have a high deductible health plan to qualify. For most working people with health insurance through their employer, this is the case. You also must not be enrolled in Medicare, be claimed as a dependent on someone else’s taxes and cannot be covered by your spouse’s health plan.

If you qualify, and are able to contribute, a health savings account is a great way to both save for inevitable medical expenses while also getting a tax break. While it can give you a break this tax season, it’s also a vital long-term savings vehicle with tax benefits not seen anywhere else allowing you to take advantage of pretax contributions, tax-free growth and tax-free distributions all at the same time.

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This article originally appeared on GOBankingRates.com: Consider an HSA if You Need a Last-Minute Tax Bill Reduction