As a single mother, you have basically two options. You can open a flexible health spending account funded by pretax dollars through your employer, or, if your employer doesn't offer comprehensive health coverage, you can open a health savings account using pretax dollars to cover a high deductible or to pay health care expenses.

If you make a lot of money, or if you or your children have extreme medical expenses, you may be among those rare people who benefit from medical and dental deductions. Even though health care premiums are probably your highest medical expense, you cannot use health savings accounts or flexible health spending accounts to cover their costs. Here's what you can do.

Flexible Health Spending Accounts

If your employer offers health spending accounts, you can set aside pretax income to cover your out-of-pocket expenses, including deductibles, co-pays, prescriptions, over-the-counter medications, humidifiers, eyeglasses, and so on. Your benefits administrator can provide you with a list of covered expenses.

Typically, you make payments to the account throughout the year, but you are not restricted as to when you can submit expenses for reimbursement. If you have a dental procedure in February that will be covered by the $4,000 (maximum for 2005) you allocated for the year, you can submit the bill in March and be reimbursed promptly.

However, you will need to keep meticulous records so that you don't exceed your budget, and you'll want to calculate the annual contribution carefully — any funds not used at the end of the year are returned to your employer.

Health Savings Accounts

If you do not have employer-sponsored comprehensive health insurance, or if the only health insurance you have has a high deductible ($2,000 minimum for a family), you can open a health savings account that will offer tax breaks. These accounts have distinct advantages:

• You are allowed to contribute the amount of your deductible, or $5,250 for a family, whichever is smaller, into a savings account every year.

• The amount you invest can be entered as a deduction on your tax return.

• Any payments for medical or dental care are claimed as an exemption on your tax returns. (If you spend the money for non-health related expenses, you'll owe income taxes on the amount withdrawn and may pay a penalty of around 10 percent.)

• Monies in the account earn tax-free interest.

• You can carry balances into the next year.

You can use checks or withdraw funds to pay any expenses, but you will need to keep all receipts.

Medical and Dental Deductions

You can only benefit from these deductions when your out-of-pocket medical or dental expenses are greater than 7.5 percent of your adjusted gross income and you itemize your deductions. You can read more about all of your options in IRS Publication 969, “Health Savings Accounts and Other Tax-Favored Plans.”