Flexible spending accounts (FSAs) and health savings accounts (HSAs) are both available alongside health insurance plans to set aside pre-tax money on medical expenses. If you've never dealt with them before, they can get confusing, so stay with us as we give you a brief rundown of each!
How does FSA work?
FSAs involve you, as an employee, pledging a certain amount of money to an FSA account that you can then use throughout the year on qualified medical expenses. Your employer sets the maximum amount you can pledge as well as what counts as an eligible expense, so be sure to double-check with your benefits provider to see how much you can contribute per year and what you can spend it on. The cool thing about FSA in comparison to HSA, is that you can access the entire amount you pledged for the year at the start, though that money is still taken out of your paycheck over time. So if you anticipate a lot of medical expenses at the beginning of the year, an FSA is a great option. You also don't need health insurance to be eligible.
FSAs only cover out-of-pocket medical expenses, or things that aren't normally covered by an insurance plan. In our case, this includes prescription eyewear. The funds are also "use it or lose it," so as the new year draws closer, be sure you're spending your excess funds! Some plans will offer to roll $500 over to the next year or give a grace period, but not both. Be sure to check with your benefits provider to see if these options are available to you, because neither is required.
If you're married and/or have kids, you can also use your FSA money on your spouse and children. If your spouse has an FSA from their job, you both have a higher contribution limit.
How does HSA work?
HSA accounts are only available if you have a high-deductible health plan (HDHP). In exchange for this higher deductible, you pay a lower monthly premium and may also sign up for an HSA. The great thing about HSAs is that the account gains interest over time and stays even when you change jobs. There is also a higher contribution limit than with FSAs. However, the funds are only available as they're taken out of your paycheck. Unlike an FSA, you cannot use all of your contribution at the start. The funds remain in the account year after year, though, letting you save up over time.
You don't need to be employed to have an HSA, so even if your current job doesn't offer it, it's still a good idea to set one up. To enroll, talk to your bank or your insurance provider and see if you're eligible.
Feel free to use these funds on your spouse or children age 26 and under. And like with FSAs, you can use them to buy prescription eyewear! Click the button below to get started.
Disclaimer: This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.