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A guide to HSAs and FSAs

Individuals 03.16.2022 3 MIN READ


When you receive medical care, your focus should stay on your health and well-being. Instead, for many, the financial ramifications are often top of mind. Health savings accounts (HSAs) and flexible spending accounts (FSAs) can be incredibly useful tools to help shoulder some of the financial burden.

FAQs about FSAs

  • How do they work? Each year you can elect to contribute a particular amount of money on a pre-tax basis—it's deducted from your paycheck. You pay for qualifying medical expenses, then submit a claim for reimbursement. Some plans offer a debit card, eliminating the need to get reimbursed for claims. Remember, you may have to submit receipts for purchases you make on your FSA debit card. The contributions you make to this account are pre-tax—meaning they decrease your taxable income.
  • What are the contribution limits? In 2022, the IRS limit is $2,850 per employee. If an FSA is offered as part of your healthcare benefits, your employer will announce the limit for 2023 no later than the beginning of the new plan year.
  • What expenses are eligible? FSAs can cover out-of-pocket expenses, such as copays, deductibles and coinsurance for you, your spouse, dependents and children up to 26 years old.
  • Do funds expire? Yes. FSAs have a "use it or lose it" rule—if you leave a balance in your account at the end of the plan year, you will generally forfeit it. However, some employers may allow you to roll over a small amount of money or allow for a short grace period.

FAQs about HSAs

  • You can open and contribute to a health savings account if you are covered by a high-deductible health plan (HDHP)  and meet certain criteria. HSAs are typically available through your employer and—if not—at many financial institutions. HSAs have major tax advantages. Any contributions you or your employer make, plus any investment gains those contributions earn, are tax-free as long as they are used to pay for qualifying medical expenses. Additionally, employee contributions made to this account are pre-tax; therefore, they decrease taxable income. If you are on your own HDHP and your spouse is on a traditional plan with an FSA, you are not eligible to contribute to an HSA. There are other eligibility restrictions on HSAs as well, so be sure you understand these criteria before contributing.
  • What are the contribution limits? In 2022, the limit is $3,650 if you have individual coverage and $7,300 if you have family coverage. An additional $1,000 catch-up is also available for individuals age 55 or older by year end.
  • What expenses can they cover? HSAs can cover out-of-pocket expenses, such as copays, deductibles and coinsurance for you, your spouse and all dependents you claim on your federal tax return. HSA money also can be used for Medicare premiums.
  • How do I reimburse myself out of my HSA? You may be provided with a debit card that is linked to your HSA. Alternatively, you have the ability to reimburse yourself for any qualified medical expenses incurred after your HSA was open, at any point in time. Even if it is 10 or 20 years later. Although you do not need to present a receipt of expense when withdrawing money from your HSA, it is critical to save all proof of expenses in the event you were to be audited by the IRS.
    • Being able to reimburse yourself later down the line allows for a unique planning opportunity. If cash flow allows, pay for medical expenses out of pocket and allow the funds in the HSA to remain growing tax deferred. At any point down the line, you can reimburse yourself for those expenses without incurring any tax at that time.
  • Who can they cover? An HSA can cover yourself, your spouse and any qualifying tax dependents. It is important to keep in mind that even if your spouse or dependents are not on your healthcare plan their expenses can still be covered by the funds in your HSA.
  • Do funds expire? No. Unused funds carry over from year to year and go with you if you leave your current employer—which can make an HSA a valuable retirement asset.
  • How do HSAs work in retirement? If you are on Medicare, you are ineligible to contribute to an HSA as it is not considered a HDHP. However, you can still utilize the funds in your HSA to cover Medicare premiums, prescription drugs and any other qualifying medical expenses. Once you reach age 65, you are able to use your HSA for non-medical expenses and will only be subject to ordinary income tax upon the distributions.

Common HSA mistakes

  • Although the HSA cannot be a joint account, the 2022 limit of $7,300 is a family limit. If both you and your spouse have an HSA, you together cannot exceed the yearly family limit. It is also important to note that any contribution from an employer will count toward the limit.
  • If you use funds in your HSA prior to age 65 for a non-qualified expense you will be subject to ordinary income tax and a 20% additional tax on the distribution.
  • You are not able to have both a general purpose FSA and HSA at the same time. However, an HSA can be paired with a limited purpose FSA, which might cover dental and vision, for example.

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