| 1. The Smith family
owns an auto detailing shop. They buy a health insurance
policy with a $3,000 deductible. |
| 2. They deposit $2,250 -- 75 percent
of the deductible -- in the bank for a medical savings
account. |
| 3. Total medical
expenses for the year are $1,000. The Smith family
withdraws $1,000 from the account to pay medical bills.
|
| 4. On next year's tax return, the $2,250
contributed to the account is listed as a tax deduction.
|
| 5. There is $1,150
left in the account at year-end. It can be used to
pay future medical bills. Interest on the account
is tax-free. Money can be withdrawn at any time to
pay medical bills and is tax-free. Using the funds
for any other purpose makes them subject to regular
tax rates plus a 15 percent penalty. |
Source: Council for Affordable
Health Insurance
-- Posted: Feb. 9, 1999
|
