There’s not many days left in 2016, and that means it’s time for open enrollment. Among your options, you might have access to a Health Savings Accounts (HSA) or a Flexible Savings Accounts (FSA). Unless you work in the insurance industry, understanding how these programs work can be confusing.
One study demonstrated that 77% of people made mistakes when signing up for their insurance benefits, and those mistakes will likely cost them money. We want to help you learn how these programs work and what benefits they can provide.
What are HSA’s and FSA’s?
Both HSA’s and FSA’s are programs designed to help cover medical expenses that you would normally pay out of pocket, and using them provides some great tax benefits, too. Let’s talk about the differences between the two different types of medical spending accounts.
Health Savings Accounts
A Health Savings Account is exactly what it sounds like. Used as a supplement for insurance plans that have high out-of-pocket costs (which is actually a requirement). If you know you are going to incur those costs during the year, you might as well set the money aside into a special medical account, kind of like a medical 401k.
Both you and your employer receive tax benefits for HSA’s. One neat trick is, if you want to continue to let your tax free HSA grow, you are free to pay your medical costs like you would have anyway and then pay yourself back through your savings account later.
- You don’t have to pay federal income tax on your HSA contributions
- There’s no deadline to withdraw funds — they add up year over year
- Used for deductibles, copays, medications
Flexible Spending Accounts
Insurance plans don’t always cover everything we would like, and many plans don’t necessarily include things like vision or dental services. Flexible Spending Accounts (FSA’s) let you contribute money throughout the year to use towards health-related services that aren’t covered by your plan.
The big benefit with an FSA is that not only do you not pay taxes on your contributions, but the money that you do spend is a tax write off. This can reduce your overall spending by double digits, but you have to make sure you use your benefits by the end of the year.
Current regulations allow up to $500 of your remaining FSA balance to roll over into the following year, giving you some extra time to use your benefits.
- Used for many health-related costs that your insurance plan doesn’t cover, such as: deductibles, medications, copays, and a lot more
- Great for covering predictable expenses such as braces or glasses
- Can be applied to cleanings and most dental services
|Health savings account (HSA)||Flexible spending account (FSA)|
|Eligibility requirements||Requires high deductible health plan (HDHP)||No eligibility requirements|
|Contribution limit||2017 contributions capped at $3,400 for individuals or $6,750 for families||2017 contributions capped at $2,600 and $5,000 for dependents|
|Changing contribution amounts||Change your contributions at any time during the year.||Contribution amounts can be adjusted only at open enrollment or with a change in employment or family status.|
|Rollover||Unused balances roll over into the next year.||Use it or lose it. Unused balances above $500 are lost.|
|Employers||Your HSA can follow you as you change employment.||Unless continued through COBRA, your FSA is tied to your employer.|
|Effect on taxes||Tax-deductible, but can also be taken out of your pay pretax. Growth and distributions are tax-free.||Contributions are pretax, and distributions are untaxed.|
Make Sure You Don’t Lose Your FSA Contributions
Time is running out on some of your benefits, so make sure to schedule your appointments, soon.
Is your family overdue for cleanings? Dental care is one of the best ways to utilize the benefits of your HSA and FSA programs. If it’s time for a check-up or cleaning, Dr. White and the team are more than happy to help out.
We often have a rush at the very end of the year, so schedule your appointment today to make sure we can see you soon!
~Dr. Marea White