Open enrollment season for benefits is a time for making important decisions regarding healthcare expenses for you and your family. In addition to health insurance options, many companies sponsor tax-advantaged consumer directed healthcare accounts, like Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs).
FSAs and HSAs are popular because they can help you save money on your taxes while setting aside money to help cover out-of-pocket healthcare expenses. They also give participants more control over their personal healthcare spending and choices. Understanding the facts about FSAs and HSAs can help you make informed choices about how much to contribute, how to maximize the tax advantages, and make other decisions that will impact the cost of your healthcare.
Here are seven facts about FSAs and HSAs that you need to know in order to make the right choices for you and your family.
Seven Facts about FSAs and HSAs:
1. 2018 contribution limits
The IRS maximum contribution limits for HSAs in 2018 are $3,450 for individuals and $6,850 for families. Employees age 55 and older may make an additional $1,000 “catch-up” contribution. The annual contribution limit for FSAs is $2,650.
2. Health plan requirement
To enroll in and contribute to an HSA, you must be enrolled in a qualified high deductible health plan. With an FSA, any employee can sign up for the account; there is no health plan requirement. One thing to keep in mind is that you cannot have a health FSA and an HSA at the same time; you can, however, have a limited purpose FSA with an HSA.
3. Account ownership
One of the big differences between FSAs and HSAs is who owns the account. With an HSA, you are the account owner. You don’t have to forfeit the account if you change employers or retire; it remains yours for as long as you wish to use it. In contrast, your employer owns the FSA; if you leave your employer (either voluntarily or involuntarily), you cannot take the FSA with you or continue to use the funds.
4. Account funding
You can make contributions to both types of accounts in the form of pre-tax withdrawals from each paycheck. Depending on plan setup, employers can make contributions to an HSA, as long as the combined employer/employee contributions do not exceed maximum limits. Employers can also contribute to their employees’ FSAs, either matching employee contributions dollar for dollar or setting an annual limit of $500.
5. Tax advantages
Both accounts offer the advantage of paying for IRS-approved healthcare expenses with pre-tax money. In addition, HSAs offer a “triple tax advantage” that includes tax-deductible contributions, tax-free withdrawals when using account funds to pay for approved expenses, and tax-free earnings. HSA regulations allow you to invest unspent funds, with all earnings being tax-deferred until age 65.
6. “Use it or lose it” deadlines
FSAs and HSAs differ when it comes to dealing with unspent funds at the end of the plan year. Typically, FSA funds need to be exhausted completely or face possible forfeiture. However, many plans now allow you to roll over up to $500 to the next calendar year; some FSAs have a grace period of up to 2.5 months after the plan year ends in order to use unspent dollars. Keep this in mind when deciding how much to contribute to your plan.
HSAs do not have a use-it-or-lose-it deadline. Unspent funds can remain in your account for as long as you wish, which makes HSAs an excellent tool for supplementing retirement plans.
7. Tracking deductibles
Tracking your healthcare deductibles can help you make better decisions at open enrollment time. Know the following:
- The total amount of your deductibles
- The date your deductible starts over
- What expenses don’t count towards your deductible
- If you have different deductibles for in-network and out-of-network
- How often you actually meet your deductible
How to get help
Open enrollment can be a confusing process. If you need help understanding plan features and requirements or making decisions involving plan options, contact your benefits administrator. You’re always better off with expert advice!