Monday, May 27, 2024

FSA, TSA, HSA - two of these can help a bit with medical bills

Except for some government employees, generous health insurance is rare. As the cost of insurance has skyrocketed, employers are shifting more of the cost to their employees, often through higher and higher copays and deductibles.

Either a Flexible Spending Account (FSA) or a Health Savings Account (HSA) can lessen the blow.

Note that in general you will be offered one or the other, but rarely will both be possible.

FSAs allow you (and also your spouse if they are employed) to put up to $3200 pre-tax income each year into an account that can be used to pay for eligible health and medical expenses. This saves you paying income taxes on the amount you put into the FSA. Your employer may, but is not required, to put money into your account as well, up to the amount you put in through payroll deduction.

Note that you can only contribute to an FSA if you have employer-sponsored health insurance.

It is very important to remember that these plans are “use it or lose it.” You may be able to roll over any balance at the end of the year, but if you do not spend these funds on eligible expenses, the money goes back to your employer. Also, if you change employers, your FSA does not travel with you.

Before deciding to contribute to an FSA, look carefully at your out-of-pocket medical expenses for the last year or two – and take into account any expected expenses such as dental work or elective surgery.

If it is offered, an HSA is an even better deal, particularly if you can afford to put in significant sums. An HSA can be set up by your employer or, depending on the type of health insurance you have, yourself. The contributions lower your taxable income, just as with an FSA, but there is no deadline for spending the money. You can let it accumulate, tax-free, and, as long as you use the money for health expenses, pay no tax on withdrawals. An HSA is yours – if you change jobs, it goes with you.

The maximum contribution limit of an HSA is higher than to an FSA. Individuals can contribute up to $4,150 to their HSA accounts for 2024, and families can contribute up to $8,300. People 55 and older are allowed an additional $1,000. As with FSAs, employers may but are not required to contribute.

On what can you spend the money in these accounts? Copays and deductibles are eligible, as are dental bills, medical equipment, eyeglasses and most over-the-counter medications. You can even use the money to pay for needed home renovations if they are medically-justified.

Neither of these types of accounts will remove all the sting of exorbitant medical costs, but if Uncle Sam is willing to help, you should let him do so.

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