Funding health savings accounts are another mechanism for individuals to lower their tax rate each year and ramp up their savings for medical treatments and retirement.

Health savings accounts are commonly referred to as HSAs and are not only flexible, but a good option for people who either need to save money on taxes or spend money on a regular basis for illnesses or other medical conditions.

These accounts not only cover a range of medical expenses, the contributions are not subject to federal income taxes and can be invested like an IRA. One of the main advantages of HSAs is that any unused funds roll over each year and the remaining funds can be used for retirement after the age of 65.

Utilizing funds from an HSA is essentially a discount on health care -- someone who is in the 30% tax bracket may pay $100 for a doctor's visit, but will obtain $30 back after filing his taxes.

"A health savings account can be used as an additional way to build a retirement nest egg, even after maximizing contributions to other tax-advantaged retirement savings options such as a 401(k) and IRA," said Greg McBride, chief financial analyst for Bankrate, a New York-based financial content company.

The added appeal is the tax incentives available from an HSA -- tax deductible contributions, tax advantaged growth of those contributions and tax-free withdrawals to pay for future healthcare expenses, he said.

Since it operates like an IRA, it does not matter if you switch jobs. Unlike the Flexible Spending Accounts, or FSAs, that many employees obtain from their employers, which have a use-it-or-lose-it provision, money contributed to your HSA can roll over and grow from year to year, if you do not use it for medical expenses.

The number of Americans who take advantage of opening and funding an HSA remains low because eligibility requires having a high deductible health insurance plan.

"That frankly is a strain on the budget that most households can ill-afford," McBride said.

People who buy coverage from the health insurance exchanges are often purchasing high deductible plans. A high-deductible plan cost at least $1,300 for an individual and at least $2,600 for a family in 2017, according to the IRS.

Contributions designated for 2017 medical expenses and made before April 17, 2018 can be allocated for your 2017 federal taxes. HSA contributions for the 2017 tax year are limited to $3,400 for individuals and $6,750 for families. People who are over the age of 55 qualify to make an additional $1,000 contribution for 2017.

"Health Savings Accounts can be a good value for some people if they're used as intended -- as investment accounts that can help you save toward the cost of medical care, both now and into the future," said Lisa Zamosky, senior director of eHealth  (EHTH) , a health insurance exchange based in Mountain View, Calif. "If you have an HSA, be sure to deduct your contributions up to the prescribed limits on your federal tax return."

These investment accounts allow people to set money aside tax-free and invest in the market to increase their retirement savings. The contributions for 2018 are limited to $3,450 for individuals and $6,900 for families.

Opening an HSA and funding it properly can save people money on a broad range of qualifying medical costs, including your copays and deductibles, which have been rising. The only item that the money in your HSA can not pay for is your health insurance plan's monthly premiums.

HSA funds can be used for tens of thousands of medical expenses, including the cost of dental and vision care and other services not covered by your health insurance plan.

IRS Publication 502 has a definitive list of qualifying medical expenses, but here are some more interesting possible uses of HSA funds:

  • Acupuncture treatments
  • False teeth, which can be pretty expensive and aren't always covered by your health insurance or dental insurance plans
  • Bandages
  • Braille books and magazines for the vision impaired
  • Breast pumps and supplies
  • Chiropractic care
  • Your car in some cases such as the cost of transportation to and from the hospital for medical reasons or the cost to have hand controls installed to make it possible to drive with a specific medical condition. You may also be able to include the cost difference between a regular car and one designed to hold a wheelchair.
  • In vitro fertilization
  • Prescription eye glasses
  • Eye surgery, even corrected vision surgery like LASIK
  • Guide dogs or other service animals -- both the cost of purchasing a guide dog, training, feeding, grooming and vet care
  • Medicare Part B or Part D premiums.
  • Meals at hospitals if the principle reason to be there is to receive medical care
  • Sterilization like vasectomy or tubal ligation
  • Pregnancy test kits
  • Psychoanalysis
  • Special education tutoring costs, if recommended by a doctor.

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