It’s time to prepare for next year’s medical expenses, but it can be tough to know how much to set aside.
That’s one advantage of enrolling in a flexible spending account (FSA) or a health savings account (HSA). It allows you to prepare for expected and unexpected medical expenses.
An FSA and HSA allow you to pay for things you are likely already spending money on with tax-free dollars since the funds are taken out of your paycheck before taxes. There are tons of eligible expenses for tax-free purchase with FSA and HSA funds, including prescriptions, doctor’s office copays, health insurance deductibles, coinsurance, and many over-the-counter treatments.
- Blood pressure monitoring device
- Dental services
- Eye examination, eyeglasses, or contact lenses
- Family planning items
- Lab fees
- Weight-loss programs
- Wheelchair, walkers, crutches, and canes
For a complete list of eligible medical expenses, see IRS Publication 502.
You can’t have both an FSA and HSA, but there are advantages to both.
For those with an FSA, one benefit is having access to your entire annual amount on the first day of the plan year* (for Nextep clients, that’s January 1.) However, unlike an HSA, the FSA funds are “use it or lose it.” You can rollover up to $550 to the following plan year. You can also read more about FSA limits here.
To have an HSA, you must be enrolled in a qualified high-deductible health plan (HDHP), not be covered by secondary health insurance or Medicare, and not be someone’s dependent. Unlike an FSA, funds in your HSA don’t expire. Any unused dollars in your HSA roll over from year to year, making it easier to save and invest in your future. We suggest you check with your financial advisor or institute to learn more about your investment options with an HSA.
You can read more about if an HSA is right for you by reading our blog: HSA – Should You Have One?
*The IRS excludes this feature for dependent care accounts.