PHOENIX, Ariz. — As you decide which healthcare plan is best for you and your family, you may have seen options to put money into a Health Savings Account or a Flexible Spending Account. But should you do it?
Any money you put into a Health Savings Account (HSA) or Flexible Spending Account (FSA) , is non-taxable. On one hand that can mean big savings, but on the other there are limitations to how and when you can use it.
An HSA is an option if you have a high deductible medical plan. Those are plans that make you pay a minimum of $1,350 for an individual and $2,700 for a family before a higher level of coverage kicks in.
You can contribute up to $3,500 for an individual and $7,000 for a family each year. It works similar to a checking account, with a debit card, and usually is offered through an employer. However, you can open one on your own.
The money must be used for medical expenses, excluding your insurance premiums. At the end of the year, the money rolls over to the next.
FSA's are also pre-tax money, but depending on the type of FSA you have you cannot also have an HSA. That is only possible if you hold an Limited FSA.
With FSA's you can contribute up to $2,600 a year. While HSA account contributions can be adjusted anytime throughout the year, FSA's are set for the entire year. Also, you better use it or lose it. Depending on your FSA you may be limited to rolling over a max of $500 or nothing at all.
General purpose FSA's cover most medical and prescription out-of-pocket costs. While Limited FSA's do not. In fact, Limited FSA's only cover qualified vision and dental expenses. That can make it harder to use any leftover money at the end of the year.
There are also FSA's that cover childcare or care for a dependent spouse. You can contribute up to $5,000 yearly for one of those.
Overall, HSA's and FSA's can be great tax saving tools, if you know how to use them.