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New Year, Old Problems?

Inevitably, one of the most common questions we get here when it comes to employee benefits for our clients is those pertaining to healthcare.  It’s no secret that healthcare costs, no matter who is in office, continue to rise and in the last few years, we’ve seen several alternate methods devised to allow taxpayers to help pay for their healthcare. 

In general, the two most common are Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). 

But what are they, really?

Well, from a general point of view, the two accounts do a lot of the same thing, but, as with anything related to healthcare, there are loads of differences. 

Let’s break down the HSA first, because, as we’ll see, qualification, usage, and contributions are very different between the two and can make a great deal of difference in whether or not you like the account or feel it’s not useful. 

For starters, HSAs will NOT be available to you unless you have a high deductible for their healthcare costs (at least $1,350 for individuals and $2,700 for families).  There isn’t a deductible limit for FSAs and any employee can contribute if their employer offers one.  Ironically, even though self-employed individuals can contribute to an HSA regardless of their healthcare deductible, they cannot open an FSA. 

Personally, we’ve found the regulations for HSAs to be more useful since there is no stipulation on when the funds must be used – in general, an FSA must use the monies held in it by the end of the calendar year or in the grace period immediately thereafter.

So how do you manage these potential accounts?  Well, for employees, the employer generally sets them up and allows the employee to contribute.  We’ve seen instances where an employer will make contributions to the accounts, but in general, these are simply vessels for true savings from the employee only.  Both accounts cap out at a maximum contribution for a family at $7,100 annually ($3,550 for individuals in HSAs and $2,750 in an FSA). 

So what does it mean?  Well, the HSA is not nearly as strict in how the money can be used and when it can be used.  Obviously, this gives contributors options an FSA doesn’t have.  For individuals who might also be looking to move into an entrepreneurial direction, there are also ways to rebuild an HSA into a financial entity with rules very similar to the Roth and Self-Directed IRA accounts, too.  We’ve even heard of investors structuring HSAs to allow them to own real investments within the HSA and use that to outmaneuver the contribution limits. 

At the same time, the proper use of a well-funded HSA can do things no FSA can ever hope to do.  Far from simply buying medicines, a properly structured HSA will not only pay for your chiropractor’s visit, but it can also actually pay for the pool and hot tub in your backyard.  Just as importantly, once a taxpayer reaches age 65, non-medical withdrawals are taxed at their current tax rate.

None of this is to say that HSAs are a financial free-for-all, they aren’t.  There are strict regulations on how they are to be used, but more and more, smart people looking for a financial edge are using the rules and laws within the U. S. Tax Code to help them use their money and savings wisely while decreasing their tax burdens. 

If your current healthcare from work isn’t doing everything you need it to, though, by all means, reach out to me and my team and let’s investigate what your employer has available that can help you to not only feel better but also to keep more of your money.