Experts Give Tips For Choosing Between Flexible Spending And Health Savings Accounts
NEW YORK (CBSNewYork) — For a lot of workers, open enrollment for their 2014 health benefits is now — and picking the right plan can be daunting.
As CBS 2’s Dick Brennan reported, one big question facing Americans: Should they sign up for a flexible spending account or a health savings account?
Flexible spending accounts, or FSAs, accompany traditional health insurance plans through your employer. They allow you to set aside pre-taxed earnings — up to $2,500 a year — for qualified medical expenses such as prescription drugs and doctor visits. But if you don’t spend all the money by the end of the year, you lose it.
“A flexible spending account is pretty easy,” CBS News business analyst Jill Schlesinger said. “You elect it when you enroll in your benefits, and it is taken straight from paycheck.”
With health saving accounts, or HSAs, you must enroll in a high-deductible health plan. Individuals can contribute up to $3,250 of pre-tax wages per year, but, different from flexible spending accounts, the unused money can be carried over to the following years and can even accrue interest.
“It works just like a 401(k), where you can take distributions at the end of the time if you never wind up using them,” said Vince Ashton, CEO of HealthPass New York, which sells insurance to small businesses and sole proprietors. “But in the meantime, if you do need to dip into that account for your medical care, you can go ahead and there’s no tax penalty to be able to do that so long as it’s a qualified expense.”
Which option is best for you depends on several factors.
“If you’re younger and healthier, the HSA may be more beneficial because you’d be using it in conjunction with a high-deductible plan,” Schlesinger said. “If you’re older and maybe have some health concerns, perhaps an FSA would be better for you.”
Experts say choosing between an FSA and a HSA is about risk tolerance: How well do you take care of yourself? Will you pay more for peace of mind, or maybe bet on your good health?
Regardless of your choice, Ashton said the incentive for picking one or the other is too great to pass up.
“On a tax-deferred basis or a tax-advantage basis, you’re saving 30 cents on the dollar,” he said. “That goes a long way when you’re starting to pay hundreds of dollars every month towards things.”
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