TED JENKIN: We are just in the swing of most companies beginning the season of open enrollment. It's that time where most families get the two-week window to consider what benefits they will elect for the upcoming year. In my experience, most people spend more time planning their family vacation than they do closely analyzing these important benefit decisions. One of the most common misunderstandings people have about planning their medical insurance needs and minimizing taxes is the difference between a health savings account (HSA) and a flexible spending account (FSA).
While I won't have the opportunity to expand in detail about each of these programs, it is paramount that you understand the highlights. At their core, both of these accounts have the ability to allow you to put away pretax dollars that can ultimately be used tax-free to pay for qualified medical expenses. FSAs are often used for dependent care, which is extremely common as well. FSA contributions are 'use or lose' which means you typically need to use the contributions by yearend or you can lose them. HSA contributions can be carried over from year to year.
HSAs are tied to selecting a high-deductible health insurance plan. FSAs are not tied to a particular health-insurance plan. Even though the acronyms are only two letters apart in the alphabet, they continue to be extremely misunderstood by most families who are making changes during open enrollment. Pay close attention and do your homework on the individual and family limits within these plans because some wise financial planning could save you considerable money on your bottom line.
Ted Jenkin (@tedjenkin) is the co-CEO and founder of oXYGen Financial, a financial advisory firm focused on the X amp; Y generations. He also blogs at yoursmartmoneymoves.com.
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