HSA's and FSA's to Stretch Your Budget!

If you have access to a Healthcare Spending Account or a Flexible Spending Account at your work and aren't taking advantage of these accounts, you are missing out on an opportunity to use pretax dollars to pay for your medical, prescription drug, dental and vision co-payments.  That can make a big difference, depending on your tax bracket.  For example, if you are in the 24% tax bracket and contribute $2,000 to an HSA, you would need $2,631 to get the same after tax amount (after deducting $631 in taxes).  

A Healthcare Spending Account (HSA) currently has a maximum annual contribution of $3,500 for individuals and $7,000 for families.  Many employers also kick in a little extra if you do some wellness activities, such as flu shots, health screenings, etc.  The nice thing about an HSA is that the unused account balance can carry forward indefinitely to future years and can be used at any time in the future to pay for medical expenses.  Most of these accounts allow you to use a linked debit/credit card to pay your bills (or you can enter payments online similar to a bank's online bill payment service).  Many HSA's also offer the ability to invest excess funds in a variety of mutual fund-type investments with different risk profiles.  All income and withdrawals are tax free as long as they are used for qualified medical expenses.  

A Flexible Spending Account (FSA) currently has a maximum annual contribution of $2,700 and can normally be used for medical, prescription drug, vision and dental payments.  When you have both an HSA and an FSA, the FSA becomes "limited purpose" and can only be used for vision and dental copayments.  You must use the HSA for medical and prescription drug payments.  The downside of the FSA is that any unused balance at the end of the calendar year over $500 is forfeited, although you have until March 15 of the following year to file a reimbursement claim.  The $500 balance can roll-over to the following year but must be used that year.  If you have kids with braces, it's pretty difficult not to use the entire FSA balance, but it's good to plan ahead at annual enrollment time just to make sure.

If you missed out on this during annual enrollment at the end of 2018, you can always enroll in 2019.

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