Medical expenses are always a good thing to plan against. With the peaks associated with most accounts used for keeping our medical expenses, it is recommended that we take advantage, and open one today. A few medical accounts have some tax benefits. Let us look at the accounts with these benefits and also the process of operating such accounts.
Tax-Advantaged Accounts for Health Care Expenses
Tax advantage accounts are known for giving you an upper hand when paying tax on money saved in such accounts. A few such accounts used for health care expenses include the following.
- Flexible Spending Accounts (FSA)
- Health Reimbursement Accounts (HRA)
- Health Savings Accounts (HSA)
- Medical Savings Accounts (MSA)
Flexible Spending Accounts (FSA)
The flexible spending account is employer-established. After deciding on enrolling in the plan, your employer divides your annual election by the number of pay periods you have in the plan year. This amount is payroll deducted each pay period on a pre-tax basis throughout the year. Funds in this account are available for withdrawal throughout the plan year to pay for eligible expenses.
Health FSA funds can be used for health care expenses incurred by you, your spouse, and your dependents. In the case of providing for your dependents, you can use the funds for the following.
- Summer day camp
- Before and after school care
Health Reimbursement Accounts or Arrangements (HRA)
The health reimbursement account is a type of health plan an employer sponsors for the employees. The employers set aside money (the HRA) for the health care costs of the employee. It should be noted that HRA is not portable hence, the employees lose this benefit when they leave the company, and also, since the HRA is not a bank account, interests are not paid.
Health Savings Accounts (HSA)
Health savings accounts are much similar to your personal savings account only that money saved here should only be used for medical expenses. Because of its nature as a personal savings account, you are in full control, not your employer or the insurance company. Some of the key features of health savings accounts include the following.
- HSA is a tax-free
- Unlike the Flexible Spending Accounts (FSAs), where you lose your money if you don’t use it by the end of the benefit year, funds in an HSA rolls over perfectly.
- To have an HSA, you have to be participating in a high-deductible health plan, or HDHP.
For more details on what you can spend the money saved in an HSA on, please consult what the Internal Revenue Service (IRS) considers a qualified medical expense.
Medical Savings Accounts (MSA)
These were generally phased out and replaced by the Health Savings Account(HSA). Just like HSA, you need to be participating in a high-deductible health plan. Though it is phased out, those who had this account are still entitled to maintain them.
After looking at these accounts, we recommend that you try to get them running, at least the ones you can. You will be saving some money when you do so.