Saving through Healthcare: FSA & HSA
Saving money can be hard, especially when paired with medical expenses! However, what if you combine the two? What if you could save money every month and use that money towards medical expenses, helping not only with the expected but also the unexpected medical costs? Good news – you can do just that!
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) both allow you to save for healthcare expenses and shelter your money from taxes. Here are the other main differences between the two:
Health Savings Account
HSAs are savings accounts available to individuals with a qualified high-deductible health plan. You can use HSAs to pay for qualified medical expenses tax-free. These funds can be invested, and their earnings grow tax-free. After age 65, the earnings can even be used on non-medical items without penalty. However, there is a limit of how much you can contribute each year per individual and family (this typically is adjusted annually).
Many employers offer an HSA as part of a benefits package, but if your employer does not, you can open one with an independent HSA provider. The funds in HSAs never expire, so if you can plan accordingly you can even save for medical expenses during your retirement! This strategy will position you in such a way to alleviate some of the pressure retired individuals have with a fixed income.
Healthcare Flexible Spending Accounts
Healthcare FSAs also allow you to save for qualified medical expenses without paying taxes on your contributions, but are actually less flexible than HSAs. These funds can be used for qualifying medical care and expenses and are a “use it or lose it” benefit -- they do not roll over from year to year.
FSA accounts are only offered as a part of an employee benefit package, and you must decide your gross yearly contributions at the time of enrollment. You cannot adjust the amount until the next open enrollment period. Unlike HSAs, if you change jobs you forfeit the funds unless you have COBRA coverage allotting it.
Having funds set aside for both expected and unexpected medical expenses through these accounts are tax-deductible way to save! Taking advantage of these accounts cannot only supplement your emergency fund, but can be treated as a part of your future retirement plan since medical expenses will always incur. Either option can be an excellent choice to save and use your money smartly!
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