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What’s an FSA? Making the Most of Your Flexible Spending Account

Team Stash — Mon, 09 Oct 2017 21:23:01 +0000

Unexpected medical expenses can really take a wrecking ball to your budget. Even people covered by workplace health insurance these days will pay close to $1,500 before the plan starts paying.

So it’s important to know about all of the different ways you can save to pay for your out-of-pocket medical costs.

Something called a Flexible Spending Account (FSA) might be a great savings tool for you, because it lets you put money away on a pre-tax basis, which can lower your tax bill while giving you access to funds to pay for many of your medical charges.

That money can go towards deductibles or co-pays for doctor’s visits, prescription medication, and many other medical needs.

Who’s eligible for an HSA and who’s not?

You can only get an FSA through an employer. So first things first, check with your health plan administrator or human resources department to see if your company offers one.

If you’re self-employed or enrolled in a Marketplace plan, you aren’t eligible to open an FSA. You may, however, be eligible for an Health Savings account (HSA), which is a similar type of account.

What kind of expenses are FSA-eligible?

The IRS’s list of permitted expenses is extensive, including things such as eye surgery, hearing aids, and dental work. Diagnostic tests like blood sugar test kits and pregnancy tests are also covered.

How much can I put aside?

If your employer offers an FSA, you can contribute up to $2,600 annually.

Your employer can also match your contributions up to an additional $2,600 each year–meaning you can put up to $5,200 away, if your employer contributes the maximum.

Your contributions to an FSA are deducted from payroll on a pre-tax basis, which means you don’t have to pay income taxes on the money you set aside. You can use the funds throughout the year to pay for qualified out-of-pocket medical expenses. Since you’re paying with pre-tax dollars, it’s like getting a 30% discount on your medical costs for the average account holder. You can find out more about what qualifies here.

If your employer offers an FSA, you can contribute up to $2,600 annually.

Is an FSA for everyone?

If you have recurring or predictable medical expenses, like prescription medications or managing a chronic condition, enrolling in an FSA might be a wise idea. You already know you’ll need the funds you set aside, so you may as well take advantage of the tax break. The same goes if you’re anticipating a costly surgery or medical procedure during the benefit year.

On the other hand, if you rarely incur out-of-pocket medical expenses, an FSA might not be for you.

What happens if I don’t spend all the money in my FSA before the end of the year?

This is really important: You should avoid contributing more than you know you’ll spend in the course of a year, since an FSA is primarily a use-it-or-lose-it account. That means you don’t get to keep any unused money you’ve put away for the year. Any unused amount goes straight to your employer, who can use the cash to pay for the plan’s administrative costs.

Some employers, however, may offer plans with a roll-over option. In that case, up to $500 can carry from the previous year into the following year’s FSA. That will not affect your contributions for that year.

Alternatively, some employers offer an option for a two-and-a-half month grace period to use the money in your FSA at the start of the following year. But employers aren’t required to offer either of these options, so you should check with your plan administrator to make sure the money you set aside doesn’t go to waste.

What are the rules and restrictions on an FSA?

You can’t use FSA funds to pay for health insurance premiums that you already claim as a tax deduction, as would be the case with most employer-sponsored plans. Also, certain services including cosmetic surgery and gym memberships are ineligible. Controlled substances such as marijuana aren’t covered either—even if it’s legal for medicinal use in your state, FSA funds won’t cover any substances that aren’t legal under federal statutes.

The IRS also specifies that items “ordinarily used for personal, living, or family purposes”—like a toothbrush and toothpaste—can’t be covered through your FSA. Check with the IRS to confirm whether an expense is eligible.

Can I spend my FSA money on over-the-counter medications at the end of the year to burn through my remaining balance?

You can only use FSA funds to pay for over-the-counter medications when they’ve been prescribed by a doctor. The one exception to this rule is insulin, which can be reimbursed without a prescription. If you spend FSA money on unqualified expenses, the IRS will hit you with a 20% penalty on top of being required to pay tax on the amount withdrawn.

The post What’s an FSA? Making the Most of Your Flexible Spending Account appeared first on Stash Learn.

Hey, What’s an HSA? Making the Most of Your Health Savings Account

Team Stash — Wed, 04 Oct 2017 02:34:29 +0000

Want to set aside money for medical expenses? An HSA account could be your new best friend.

Healthcare is a big expensive headache for most people. And that’s increasingly the case as more people find themselves with high-deductible health plans where they pay for more of their own medical costs. These plans typically have a lower monthly premium, they have increased in popularity in recent years: in 2016, 29 percent of workers were enrolled in a high-deductible health plans (HDHPs), according to the Kaiser Family Foundation.

But with some planning, there are ways to manage these higher medical costs of HDHPs. A health savings account (HSA) is a great way to set aside money for healthcare-related costs.

Best of all, it’s a tax break.

What is an HSA, anyway?

An HSA is a savings account you fund with pre-tax earnings, which is money you make before taxes get taken out of your paycheck. One of the big benefits of your HSA contributions is they actually decrease your taxable income. You can use this money to pay for qualified medical expenses. These can include things like doctor or hospital visits and prescriptions. There’s a list of all the things that are covered by your HSA, so you can plan ahead of time as to what you may need to plan for.

Individuals can contribute up to $3,400 and families $6,750 annually, as long as your HDHP has a minimum annual deductible of at least $1,300 for individuals or $2,600 for families, as set forth by the Internal Revenue Service (IRS).

What can I use my HSA for?

Think beyond checkups and medication. You can use the money you save for things including glasses or dental work or chiropractic care.

New moms can use HSA funds for breast pumps and supplies, and the cost of lead-based paint removal in your home can also count as a medical expense. It pays to thoroughly review the IRS’s official list of medical expenses.

Think beyond checkups and medication. You can use the money you save for things including glasses or dental work or chiropractic care.

Are there rules and restrictions on an HSA?

There are plenty of stipulations regarding which expenses can and can’t be covered using your HSA.

For example, while lab expenses, home care, and surgery is covered, monthly gym dues or cosmetic procedures are not.

Why do I need a dedicated Health Savings Account (HSA)? Can’t I just save money in my regular savings account?

You could, but you’d miss out on a major tax break. Your HSA contributions are made from pre-tax earnings, which means they decrease your taxable income.

These accounts are “triple-tax advantaged.” That means, you can put money away pre-tax. Your earnings in the account are untaxed, and when it comes time to pay for a medical expense, the money you withdraw from an account to make a payment is also untaxed. The money is already there waiting for you.

What are the rules and restrictions on an HSA?

There are plenty of stipulations regarding which expenses can and can’t be covered using your HSA. For example, while lab expenses, home care, and surgery is covered, monthly gym dues or cosmetic procedures are not. You’ll want to check with the this list at IRS.gov to make sure.

You also may not be eligible to fund an HSA if you have received Veteran Administration benefits recently, or are covered by another health insurance plan that doesn’t have a high deductible. The IRS has additional criteria you should review to determine your eligibility.

Don’t have a job that offers an HSA?

If you’re enrolled in an HDHP, you can open an HSA through your financial institution and start setting aside tax-deductible contributions. Local banks, credit unions and brokerages all offer HSAs, so you should shop around to find the right one for you.

Do I need to set up an HSA through an employer? What if I’m self-employed?

If you’re insured through an employer, they may offer to open an HSA account on your behalf. If not, you can open your own HSA through your bank or financial institution, as long as you’re currently enrolled in an HDHP. Some employers make it easy to contribute to an HSA through payroll deductions. If you’re self-employed, you can make post-tax contributions and claim the deduction at the end of the year on your tax return, which should result in money back.

As you contribute to your HSA, be mindful of the yearly cap on contributions. Some employers kick in contributions to their employees’ HSAs, which is a nice perk that also counts toward your yearly maximum.

For example, if you’re an individual, your contribution limit in 2017 is $3,400. If your employer contributed $700 to your HSA at the start of the year, your own contributions cannot exceed $2,700.

If you’re enrolled in an HDHP, you can open an HSA through your financial institution and start setting aside tax-deductible contributions. Local banks, credit unions and some brokerages all offer HSAs, so you should shop around to find the right one for you.

Important note: Watch out for monthly maintenance fees and minimum balance requirements, which can quickly eat up your savings.

If I put money in an HSA, will that interfere with IRA or 401(k) contributions?

No. You can contribute the maximum amount to both accounts each year.

What happens to my HSA if I leave my HDHP?

If you join a health care plan that doesn’t have a high deductible, you can no longer contribute to an HSA, although you may still use your existing one to pay for qualified medical expenses.

What are penalties (one or two) for using the HSA for non-medical expenses?

If you use HSA funds for non-medical expenses, you’ll be hit with a 20% IRS penalty for the expense, plus you’ll have to pay the income tax on the transaction amount.

Can I use my HSA money in retirement?

Yes. You can also treat your HSA as an investment account. Unlike your FSA, which you need to use by the end of a year, the money in your HSA rolls over year to year. By contributing the maximum amount to your HSA until retirement, you’ll build up a pot of money that won’t be taxed when you withdraw for medical expenses.

At age 65, you can also withdraw from your HSA for non-medical expenses, which means you can use the money in your account for your other living expenses. These withdrawals will be taxed just like normal withdrawals from an IRA or 401(k).

The post Hey, What’s an HSA? Making the Most of Your Health Savings Account appeared first on Stash Learn.