flexible spending account 2011

With the cost of health insurance going up and up, saving money on medical expenses is one of the hottest topics in the US. With Obama’s health care plan passed a few years or so ago, chances are you’re missing out on some opportunities to save money on medical bills. Perhaps you have a Health Savings Account (HSA) or Flexible Spending Account (FSA).

But which should you use? Both HSAs and FSAs save money, but which one saves more? Which one fits your needs the best?

First, let’s examine the health savings account (HSA). Basically, a health savings account is a kind of savings account that allows you to store funds for later use on qualifying expenses. One big advantage in using a health savings account is that deposits are made with pre-tax dollars, effectively making HSAs tax-exempt. Another huge benefit that the FSA lacks is that funds carry over to the next year if they are unused. It is possible to use the funds in your HSA to invest; HSAs are actually quite similar to IRAs. However, it is important to note that you must have a high deductible health plan to use an HSA, and it may be somewhat difficult to find an HSA plan that does not have high annual fees.

On the other hand, flexible spending accounts (FSAs) are set up by your employer rather than yourself. Funds can be used on medical and dental bills as well as medical care. Similar to an HSA, money is deposited before taxes are deducted, though this money comes out of your paycheck. One advantage to using an FSA is that you have complete control over how you spend the funds, as long as it is used on healthcare or dependent care related. (HSA funds can only be used on a smaller list of expenses.) However, a huge downfall to the FSA is that money must be used by the end of the “plan year” or you will lose all funds.

Both the HSA and FSA have their advantages, but which is better? Due to the “use it or lose it” policy, if you do not plan on spending all the funds in your FSA each year, a health savings account would be the better choice. However, you may not qualify for a health savings account if you do not have a high deductible health plan. Also, make sure the account you choose covers your most common expenses.

If you still can’t decide which is better for you, it’s always possible to have both accounts if you meet the qualifications, though sometimes FSAs might make you ineligible for a health savings account.

You might have heard about a lot of hype about the different types of health savings accounts/medical savings accounts, but what exactly are they? Perhaps you learned that you can be exempt from tax by using a particular type, or that flexible spending accounts are a good choice to accompany your health insurance plan.

An FSA, short for flexible spending account, is one of several tax-advantaged financial accounts in the United States. Employees are able to deposit part of their earnings to later fund qualified expenses through their FSA. Usually, funds are used for medical expenses but may also be used for healthcare and other expenses.

There are a number of different types of FSAs. The most commonly used is the medical FSA, which is similar to a health savings account but differs in a few ways. While health savings accounts are usually parts of a consumer driven health care plan, medical FSAs are usually included in traditional plans as well.

Funds in one’s FSA are usually used for items that are not paid for by one’s insurance. For example, you might use funds on deductibles, co-payments, and co-insurance for your health insurance plan.

One disadvantage to a flexible savings account is that you must spend deposited money within a “coverage period.” Under most plans, this is the calendar year, but it could run up to a whole year if you are offered a “grace period.” Any money that you do not spend is lost to your employer, known as the “use it or lose it” rule. Also, it is important to understand that you must pay taxes even on forfeited funds. Studies have shown that employees lose an average of $100 in forfeited funds each year in their flexible spending accounts.

So, what do I do if I am worried about losing money to my employer? The good news is that this “use it or lose it” rule does not apply to health savings accounts (HSAs). If you do not feel comfortable about losing any unused funds at the end of the year, a health savings account may be a better choice.

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Tag Archives: flexible spending account 2011

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