As the year draws to a close, it’s a good time to review and optimize your health savings and spending accounts to maximize their benefits. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) allow you to manage healthcare expenses while offering potential tax advantages. In this blog post, we’ll discuss the key considerations and strategies for navigating HSAs and FSAs before the year ends.
Understanding Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
Both HSAs and FSAs are designed to help individuals and families cover qualified medical expenses, but they operate differently in terms of eligibility, contribution limits, rollover rules, and tax implications. HSAs are available to individuals enrolled in high-deductible health plans (HDHPs) and offer tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. In contrast, FSAs are offered by employers and allow employees to set aside pre-tax dollars for eligible healthcare expenses within a plan year, with a portion of the funds potentially eligible for rollover or grace period.
Reviewing Contribution Limits and Expenditures
Before year-end, assess your HSA and FSA contributions and expenditures to seek to maximize their benefits. For HSAs, review your contribution limits and consider maximizing contributions to take advantage of tax benefits while strategically planning for future medical expenses. With FSAs, evaluate your current balance and any remaining funds, and plan eligible expenses to avoid any potential loss of unspent funds due to the “use it or lose it” rule that might apply to your particular plan.
Navigating Rollover and Grace Period Options
Understanding the rollover and grace period options for FSAs is important for optimizing your healthcare spending accounts. Some FSAs allow a portion of unused funds to carry over to the next plan year or offer a grace period for spending remaining funds. By leveraging these options, you can strategically plan for healthcare expenses and avoid forfeiting unused funds that could contribute to your financial well-being.
Strategic Year-End Health and Wellness Expenditures
As the end of the year approaches, consider taking advantage of any remaining HSA or FSA funds for qualified medical expenses, including doctor visits, prescription medications, dental and vision care, and eligible over-the-counter products. Additionally, explore wellness services and products that may be covered by your accounts, such as gym memberships, physical therapy, and certain medical supplies, to support your well-being and try to maximize your account benefits.
Preparing for the New Year
Looking ahead, use this opportunity to assess your healthcare needs and financial goals for the upcoming year. Review your coverage, anticipated medical expenses, and potential changes to ensure that your contributions and account selections align with your evolving needs and objectives.
As we approach the end of the year, effectively managing your HSAs and FSAs can lead to significant tax savings and support for your healthcare needs. By strategically assessing your contributions, expenditures, rollover options, and future plans, you can seek to optimize the benefits of these accounts for a healthier and more financially sound future.
Disclosures
This material was prepared using Artificial Intelligence (AI).
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
