FSA or HSA: How to get the most from your health savings




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Many advisors are now touting HSAs as one of the best ways to save for retirement.

You’ve likely heard that you can reap great tax benefits by putting money in health savings and flexible spending accounts to cover health-related expenses.

But what is the difference between the two accounts?

Both types of accounts can “make your paycheck go farther,” said Jody Dietel, chief compliance officer at WageWorks, a provider of health, commuter and employee-benefit plans.

Flexible spending accounts are more widely used by savers, with WageWorks estimating there are three participants for every one health savings account holder, Dietel said. They are also not a perk for the rich, according to Dietel. Savers using both kinds of accounts have an average household income of $57,000 a year, she said.

Here’s what you need to know to make one or both accounts part of your savings plan.

Flexible spending accounts

A flexible spending account is offered at your employer’s discretion and allows you to sock away pretax funds for qualified medical expenses. The maximum amount savers can put in these accounts in 2018 will be $2,650, a $50 increase from 2017, according to the IRS.

The funds can be used for medical expenses that are not covered by a health plan, including co-pays, deductibles, dental and vision care or dependent day care. Eligible expenses can vary with specific plans.

Money in flexible spending accounts is generally subject to a use-it-or-lose-it provision. You must use the funds for qualified expenses by the end of year or risk losing the money. Some employers may offer workers a bit more flexibility by either allowing them more time, a grace period or the ability to carry over up to $500 into the next year.




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