Understanding tax-advantaged healthcare accounts

Fall is open enrollment season for healthcare benefits at many companies. In addition to selecting the right healthcare coverage for yourself and your family, you may also be reviewing your options for healthcare saving and spending. There are two main types of account for this purpose, and both offer tax advantages: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).

They both allow you to put away tax-exempt money for healthcare expenses, up to an annual maximum set by the Internal Revenue Service based on which account type and whether you have individual or family coverage. There are also some major differences between the two:

• HSAs are not “use it or lose it.” Unlike FSAs, you don’t have to spend the money in an HSA by the end of the year (or carryover period). This account also follows you even after you leave your current employer.
• You can invest HSA funds. You can keep a minimum amount in the cash account and invest the rest in mutual funds to grow over the long term.
• You can open an HSA even if it isn’t offered by your employer. You’re allowed to contribute to an HSA as long as you have an eligible high-deductible health care plan. FSAs are offered only through your employer.
• With HSAs, you have an unlimited amount of time to reimburse yourself. You can withdraw the money for eligible expenses at any time. With FSAs, you must submit receipts by a deadline.

Your healthcare needs and insurance plan will help determine whether an HSA or FSA is the best fit for you. You may even be suited for both, in which case the FSA must be used for specific needs like dental, vision or dependent care.

If you’d like to talk to a member of our Health & Benefits team, contact them at health@pnfp.com.