What to know about HSAs and FSAs
Edward Jones - Chad Choate, AAMS
For more information about the author, click to view their website: Edward Jones
Sep 28, 2023
Florida - Sarasota, Bradenton & Charlotte Counties
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Paying for health care can be
challenging — but are you taking full advantage of all the resources available
to you?
You
might have access to a Health Savings Account (HSA) or a Flexible Spending
Account (FSA), so let’s look at both.
An HSA
is a personal savings account used to pay health care costs. If you’re enrolled
in a high-deductible health plan, you also may be eligible to contribute to an
HSA. You aren’t taxed on the money you put into this account or on the earnings
generated from your contributions, as long as withdrawals are used for
qualified health care costs such as deductibles, copayments and coinsurance.
And there’s no “use it or lose it” provision with HSAs — the money stays in
your account until you use it. In fact, you can carry your HSA with you all the
way until retirement, when you can use the money to pay for qualified expenses
that Medicare or Medicare Supplement Insurance (Medigap) doesn’t cover. In
2023, you can contribute up to $3,850 to an HSA, or $4,850 if you’re 55 or
older; for family coverage, you can put in up to $7,750.
It’s important to keep in mind that your HSA’s tax
benefits only apply when your withdrawals are used for qualified heath care
costs. If you use the money for non-qualified expenses, it is considered
taxable income, and you may also face a penalty of 20% on the amount withdrawn.
However, once you turn 65, you can use your HSA funds for any purpose without a
penalty, though the withdrawals will still count as taxable income.
Now, let’s turn to the Flexible Savings Account. An FSA
may be available to you if you get health insurance through your employer. And
because you fund your FSA with pretax dollars, your contributions can reduce
your taxable income. (In 2023, you can contribute up to $3,050 to an FSA.) Your
employer may also choose to contribute to your FSA. Once your account is funded
and active, you submit claims with proof of your medical expenses, along with a
statement that these expenses aren’t covered by your plan, and you can be
reimbursed for your costs.
It’s helpful to
have a good estimate of your yearly medical expenses for a Flexible Savings
Account. That’s because an FSA generally needs to be spent before the end of
the plan year — if you don’t use all the money, you can only carry over some of
it and any remaining balance is forfeited. (You can carry over up to $610 from
2023 into 2024.)
You
can't contribute to an HSA and a traditional FSA in the same year. But if you
have an HSA, you might be able to use what’s known as a Limited Purpose
Flexible Spending Account (LPFSA) for dental and vision expenses. You’ll need
to check with your plan to see if this option is available.
Managing your health care expenses should be a key part of your overall financial strategy — so consider putting an HSA or FSA to work for you.
Chad Choate III, AAMS
828 3rd Avenue West
Bradenton, FL 34205
Phone: 941-462-2445
This article was written by Edward Jones for use by your local
Edward Jones Financial Advisor.
Edward Jones, Member SIPC
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