Need any more proof that humans aren't as rational as economists assume? Look at flexible spending accounts, a benefit that can put hundreds of bucks in your pocket. About 80% of large employers offer FSAs, but a mere 22% of their workers enroll, according to the consultancy Mercer.
An FSA allows you to set aside part of your paycheck for health expenses. (The exact limit depends on your company, but it's usually $2,000 to $5,000.) You don't have to pay income or payroll taxes on that part of your earnings. So if you are in the 28% bracket, a $1,000 FSA may save you about $350. Money in your FSA can usually be used to cover co-pays and deductibles, prescriptions, and even over-the-counter drugs. These plans used to require paperwork, but that excuse is gone. Many now offer debit cards and websites to track and manage your spending.
There are still two little catches: First, you lose money you don't spend by year-end (or in the first months of the following year, again depending on your company). So use your bills from this year to estimate your expenses for next year. If a little is left over in December, you can stock up on Tylenol or buy an extra pair of glasses. Second, you can sign up only after a life change (a marriage, a baby) or during open-enrollment season, near the end of the year. So mark your calendar now.
Wish you could pay a lower monthly premium? Many firms offer you a choice between a traditional plan and one with low monthly costs but a much bigger annual deductible. But high-deductible plans aren't a good fit for everyone.
Before you switch, consider both your overall health and your ability to pay for the whole deductible. In general, if you are older or have a chronic condition, you're better off in a traditional plan, says Los Angeles financial planner Jennifer Hartman. But if your employer also offers to contribute a lot to your health savings account, that could tip the balance toward the high-deductible plan. And what is a health savings account? Read on.
If your family's insurance deductible is higher than $2,300 you likely qualify for a health savings account, or HSA. Like FSAs, these accounts let you save pretax dollars for health costs. The key difference is that you get to keep your money there as long as you want. And so long as you use it to buy health care, you don't pay taxes when you withdraw it either.
This year a family can contribute up to $5,950, while singles can put in $3,000. Those ages 55 to 65 can add another $1,000. Employers can help with contributions, and half that offer qualified plans do so. Come retirement, you can even spend the money on non-health-related items, although you'll pay taxes on it.
Your employer might recommend an HSA provider, or you can choose your own. "Shop around for the best rates and terms," says Hartman, the L.A. planner. Some HSAs offer debit cards you can use at the doctor's office or drugstore. Many even allow you to invest in mutual funds. But don't put any HSA money that you'll need within five years into anything but safe savings. Compare account terms at vimo.com/hsa. Note: You generally cannot have both an HSA and an FSA.
Comments
Post a Comment