Are There Differences Between A Health Savings Account and Flexible Spending Account?
It’s no secret that healthcare costs seemingly rise year after year. As a result, some taxpayers will consider alternative means to pay for healthcare. Two of the most popular methods are health savings accounts (HSAs) and flexible spending accounts (FSAs). While the accounts essentially do the same thing, there are some differences in who may qualify, when the money expires, and annual contribution limits.
HSAs are only available to taxpayers with high-deductible insurance plans. In order to qualify, an individual must have a deductible of $1,350 and a family must have a deductible greater than $2,700. Self-employed taxpayers are also able to contribute to an HSA. On the other hand, any taxpayer on any insurance plan can qualify for an FSA as long as it is offered by an employer. Contrary to HSAs, self-employed taxpayers cannot open an FSA for their own benefit.
Funds stored in an HSA have little to no regulations on when the money expires. It can grow tax-free for months, years, and possibly even decades. The same cannot be said for FSAs. Money saved in an FSA expires at the end of the calendar year, although some accounts offer a grace period.
Despite the fact that an employer may contribute to either type of plan, both plans are usually funded by the taxpayer’s contributions. For 2020, the maximum HSA contribution is $3,550 (up from $3,500 in 2019) for an individual and $7,100 for a family. FSAs also received a $50 increase for 2020, making the maximum contribution $2,750 for an individual and $7,100 for a family.
If a taxpayer is eligible to do so, they should certainly sign up for an HSA. The contribution limits are greater and the funds are allowed to grow tax-free year to year. Some accountants believe saving in an HSA is more beneficial than an IRA because the contributions are tax deductible, withdrawals are tax free if used for healthcare expenses (sometimes including dental or vision care), and once a taxpayer reaches age 65, non-medical withdrawals are taxed at your current tax rate.
If you have any other questions about an HSA, FSA, or their tax benefits, the professionals at The Center for Financial, Legal and Tax Planning are more than well-equipped to answer your questions. Please contact us at (618) 997-3436.