Health Savings Accounts & Your Financial Plan
FJ Wealth Management: Serving Investors in DC, Maryland & Northern Virginia
Successful wealth management includes planning for upcoming medical costs, especially as you get closer to retirement. Health savings accounts (HSAs) are a great way to save for medical expenses and build a retirement fund for the future. If you participate in a high-deductible health insurance plan, contributing to an HSA might help you reach your financial goals.
Choosing the right savings option for you begins with a consultation with your financial advisor. Keep reading to learn more about how HSAs work, or contact us today to schedule your no-cost initial consultation.
What Is an HSA?
An HSA, or Health Savings Account, is a way to put pre-tax money aside for future medical bills. You qualify to open an HSA if you have a high deductible or catastrophic health insurance plan. These insurance plans leave you vulnerable to high out-of-pocket medical expenses, since many health conditions won’t create enough bills to meet the plan’s deductible.
Benefits of HSAs
Health savings accounts can help improve your financial picture by:
- Letting you pay for medical expenses with pre-tax dollars, essentially getting a “discount” on those medical bills.
- Helping you build up a health emergency fund for things that cost less than your high health insurance deductible, to pay co-payments, and more.
- Lowering your taxable income by the amount you put into your HSA. If this puts you into a lower tax bracket, you save even more.
Difference between HSAs and FSAs
Health savings accounts and FSA accounts (flexible spending accounts) sound similar, but have significant distinctions.
Both types of accounts can help you save money on health expenses, insurance deductibles, co-payments and more. Both HSAs and FSAs provide you a “discount” on health costs, because they consist of pre-tax savings that you will use to pay bills. You will never pay taxes on those funds, provided you spend them on qualified health care needs.
About FSA Accounts: Unused Funds Forfeited at Year’s End
Flexible Spending Accounts are “use it or lose it” type accounts. If funds you have contributed to an FSA are not used by the end of the year, they are forfeited. So, flexible spending accounts are helpful when you know you are having a particular test or procedure, or getting new eyeglasses (for example), whose costs you can estimate accurately.
That total estimate of upcoming costs is your FSA savings goal for the year. Employees will contribute equal amounts, through payroll deduction from each paycheck, up to the total fund amount. You can establish funds for health care and/or dependent care. (The latter savings account is known as a DCFSA.)
FSA rules allow participants to use up to the total of the annual fund right away, even when you have not yet paid in/contributed enough to cover the cost of the medical/dependent care service. FSAs must be used for the most easily predictable medical costs because you forfeit any money left over in your account at year’s end.
The HSA Difference: No Time Limit to Use Funds
In contrast to FSAs, health savings accounts (HSAs) are not forfeited at year-end. This allows them to grow, similar to an IRA, to be used in future years for healthcare costs. This means you don’t have to forfeit money left in the account at year’s end. This gives you a true “pre-tax healthcare savings account.” You can use the funds in the account anytime in the future, provided you are paying for health expenses.
An HSA account is not without rules, however. There are annual maximum contributions, which, if exceeded, can carry penalties in addition to the need to pay back taxes on excess contributions. If you decide to contribute to an HSA as part of your financial plan, be sure to follow the IRS’s rules closely.
Call us at 301-284-8786 to discuss how an HSA could suit your financial plan.
Retirement Planning with Ferguson-Johnson Wealth Management
Our retirement solutions aim to identify, plan for, and help you stay on track with your retirement goals. Our objective is to help you minimize the stress of retirement planning so that you and your family can focus on what is most important in life. We work in close collaboration with you to develop a customized retirement plan that employs effective investment strategies to secure your wealth and manage key risks during every stage of pre- and post-retirement. Most importantly, our retirement planning process puts us with you every step of the way by providing ongoing monitoring and support for your full financial picture.
If you’re ready to get started planning for your retirement, or if you’re trying to decide when you can retire, contact our dedicated team. We will walk with you through the process and be there every step of the way.