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What Are The Differences Between FSAs and HSAs?


As we approach the end of the year, I wanted to touch on a couple of benefits-related topics.Timing is sort of importance with these items due to open enrollment, but also using one of them. The two topics are also ones where I see people get turned around a bit on.  Mostly because the financial services industry has done a terrible job with our confusing acronyms.  I’m speaking specifically of FSAs and HSAs. 

Let’s first tackle FSAs, properly known as Flexible Spending Accounts.  These are a great resource for current (stress CURRENT) medical-related expenses.  Contributions are limited to $2,650 (bumping to $2,700 for 2019), however, these contributions are made pre-tax.  You may use FSA funds for medical expenses such as co-pays, deductibles, certain prescriptions and medical equipment, and maybe some big out-of-pocket expenses such as braces or Lasik.  As long as your expenses meet the FSA rules you can use your FSA account to pay for them without taxes. 

Now, about a couple of timing issues.  First, if you haven’t yet finished your benefits enrollment period and can afford to bump up your contribution to the new $2,700 level…do it!  Also, quite a few employers have set up their FSA plans with a use-it-or-lose-it approach.  This simply means if there is an unused balance in your FSA you may lose those dollars.  Fortunately, most employers allow you to roll over a portion of the balance, say $500, to the next calendar year.  However, check with your HR department to confirm.  Otherwise, maybe you can quickly get in for a quick Lasik procedure before the end of the year😉  Remember, the purpose of an FSA account is CURRENT medical-related expenses. 

I won’t spend a bunch of time on HSAs (Health Savings Accounts) as I have covered this topic a lot.Remember, it is the triple-crown.No taxes on contributions.  No taxes on growth.  No taxes on distributions as long as it is for a qualified medical expenses.  While FSAs are geared for CURRENT medical expenses, HSAs are set up for FUTURE medical expenses.  You know, retirement.   

What I did want to mention with HSAs is their amounts have also increased for 2019.  Contribution limits are now $3,500 for single and $7,000 for family.  These are increases from $3,450 and $6,900 respectively.  Remember, to qualify for an HSA you need to be in a HDHP (High Deductible Healthcare Plan).  The out-of-pocket maximums for these plans have also increased for next year to $6,750 for single and $13,500 for family.  These are increases of $100 and $200 respectively from current 2018 rates.

So, just like with the FSA comment above about your contribution rates for the new enrollment year, if you are not maxing out the HSA and can handle it…do it!  Also, if you are age 55 you can put an additional $1,000 in the HSA.  What a deal for getting older, right!

I did a quick video on the FSA vs HSA topic.  It is a bit simpler and is certainly something that can be shared with others.  Remember, my goal is to help make retirement planning less confusing.  Hopefully this helps.