The healthcare flexible savings account (FSA) is one of the most overlooked and advantageous tax havens and personal protections you can use. Whether you are gainfully employed under the safehaven of a huge company or taking on the world as a self employed entrepreneur, a healthcare FSA can help you tremendously.
What is an FSA?
An FSA is a great investment primarily because of its ability to protect you. With an FSA, you can set money aside that is completely tax free towards your health. Your employer may offer an FSA, or you may be able to invest in one through your own business entity. Here's what is important - you can cover your out of pocket medical expenses through an FSA and save money on April 15th as well.
Different Types of FSAs
You have more than one choice when it comes to saving your money within an FSA. Here are the three major choices you will have.
- HCFSA - This acronym stands for "healthcare flexible spending account." You will usually be able to save around 30% on your current healthcare expenses. This includes vision, dental and medical expenses that your primary insurance will not cover for any reason.
- LEX HCFSA - The Limited Expense HCFSA gives employees who are signed up with Federal Employees Health Benefits high deductible plans the ability to save money on qualified vision and dental expenses that would normally come out of pocket. The benefit may also extend to spouses who are on the government dole, so take a look at your employer's policies.
- Dependent Care FSA - If you have an elderly person or a child who is under your care, you may be able to use a DC FSA to help take care of their needs. This plan is a bit different from other FSAs in that you cannot deduct from the medical expenses of your dependents in the same way that you can your own. Covered expenses include things like after school programs, preschool or daycare.
What are the Advantages of an FSA?
If you know that you will have relatively high medical, dental or vision expenses in the near future, then an FSA may be just the tax deductible account for you. There are many benefits for you and your family. Here are just a few of the most important.
- Your family is covered - If you have an HCFSA, your dependents, spouse and children under the age of 26 can be covered by it as well.
- Higher take home pay - You are reducing your taxable income when you invest in an FSA properly. Because of this, you are actually taking more money home every week. In most cases, it is highly advantageous to max out your FSA contribution to the extent that the law will allow. You will end up coming out well ahead of other investments or even saving your money in cash for medical expenses.
- A substantial savings on medical expenses - No matter how great your health insurance may be, it usually does not cover many things that you need when you walk into a doctor's office. For instance, ancillary costs of diagnostic tests, OTC prescriptions and vaccines for travel are usually left to you to pay completely out of pocket. However, an FSA will take care of these expenses and more.
- Tax savings - The ways that you can save on taxes with an FSA are beyond the scope of this article, but they are substantial. Consult with a tax attorney to see just how good an FSA could be for you.
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