The end of the year is approaching fast. Do you know the details of your Flexible Spending Account (FSA) or Health Spending Account (HSA)? Each plan has advantages and disadvantages, and new rules have recently been put in place to make FSA’s more appealing.
FSA or HSA?
Health savings plans and flexible spending accounts are available to some people insured through their employers. Based on your healthcare plan, signing up for an HSA or FSA allows you to sock away money each week out of your paycheck, before taxes, to cover medical costs in the future. To qualify, your yearly deductible has to be pretty high, $1,250 for one person, or $2,500 for a family.
Once you start contributing to the account, you can use the money to meet any kind of medical expense, including copays, medicine, or out-of-pocket costs for braces for the kids. Here’s the difference between the two types of accounts:
HSA – An HSA is a lot like a targeted IRA. You can only use it for medical expenses, but contributions reduce your taxable income, build savings, and it can build up to give an extra boost to your retirement funds, although there’s a substantial penalty, 20%, if you use it for non-medical expenses.
Individuals can save up to $3,300 per year, and each spouse can have an individual account, or you can opt for a family plan that allows contributions up to $6,550 per year. Some employers will contribute to the account along with you. If your medical expenses are light, the money rolls into the next year and just keeps going until you need it.
FSA – FSAs are a bit different. You contribute pretax earnings much like an HSA, but to qualify, you’d have a higher-cost healthcare plan with higher premiums and a lower deductible. You can contribute up to $2,500 per year, but at the end of the year, you could lose a bundle if you haven’t used the money. Until just recently, unused FSA money would be absorbed by the company at the end of the year…money you worked hard to save.
In October, the Department of the Treasury announced a change to the “Use It or Lose It” rule. Starting in 2014, employers will have the option of allowing their FSA-enrolled employees to roll over $500 of their remaining balance to the following year. Some employers who offer FSA plans include a grace period, 2 months and 15 days after the plan year ends, to use the rest of the money before it disappears. This year, employers that don’t offer a grace period have a new option, to offer up to a $500 rollover for the 2013 year.
Use it or lose it?
The wording of the new rule leaves the decisions for where the money in your FSA will land. Your employer has the option of continuing as usual; absorbing your remaining funds back into the company account. What can you do to avoid using your money?
Most employers offer the grace period, so you probably have until March 15th to use the remaining funds. It’s a great time for a routine physical fitness assessment, an allergy test, or a comprehensive blood test, which can tell you if your cholesterol is in range, if you’re at risk for diabetes, and a host of other common health issues. It’s your money and your health. Spending it to gain peace of mind is infinitely superior to losing it for no reason.