Open Enrollment Alphabet Soup: What’s an HSA Again?

ImageHSA. FSA. ABC. 123.

Every year, I have to re-learn the health plan-related acronyms being tossed around at the company-wide open enrollment meeting. Since we’re on a High Deductible Health Plan (HDHP), I can use a Health Savings Account (HSA) to get a grip on medical bills. Having an HSA will help pay for the out-of-pocket expenses that the insurance plan doesn’t cover until the higher deductible is met…so I’ve read. My company will give me a lumpsum of money at the beginning of the period and an additional $10 each pay period. Free money! Yay!

ImageThe HSA account belongs to me, even if I change jobs. Although I opened an HSA at a credit union when I joined the company, I haven’t used it to my advantage. Shame on me.

ImageAt my old job, I had a Flexible Spending Account (FSA) or “use it or use it” account. If I remember correctly, I allotted a certain amount of money at the beginning of the year. I was able to use the full amount right then. The allotment was broken down into payments that was deducted from my check each pay period. Basically, my company gave me a lumpsum of money, and I paid them back in installments throughout the calendar year. I was able to use my FSA to pay off my braces in full before I left that job even though I’d be sporting a grill full of steel well after.

Both the HSA and FSA allow you to set aside pre-taxed dollars each year to pay for eligible healthcare expenses during the plan year. You save by not paying taxes on this money. The FSA let’s you spend money during the plan year, while the HSA let’s you roll over funds year after year and earn interest for future expenses.

Here are the main differences between the two accounts, according to Blue Cross Blue Shield.

Health Savings Account (HSA)

  • You can only have an HSA if you enroll in a high-deductible insurance plan.
  • You own the account. You can set it up with any bank of your choice.
  • Anyone, including your employer and relatives, can put money into the account.
  • Money taken out of your paycheck by your employer for the account isn’t taxed.
  • Money put into the account that’s already been taxed (for example, money that was a gift), is tax deductible.
  • Money in the account can roll over from year to year. (No “use it or lose it” rule.)
  • You can invest the money.

Flexible Spending Account (FSA)

  • The employer owns the account, but you get to decide what qualified medical expenses to pay from your FSA. The employer sets up the account.
  • Only you and your employer can put money into the account.
  • You can only deposit money into your FSA through payroll deduction. That money isn’t taxed.
  • Some employers let you carry up to $500 into the next year. Otherwise, any money left in the account at the end of the year goes back to your employer. (“Use it or lose it.”)
  • You can’t invest the money.

Here’s a helpful comparison chart of the FSA, HSA and HRA from Bank of America. Here’s a hypothetical example of savings:Screen Shot 2014-06-12 at 2.55.31 PMI think I finally have a grip on this. Let’s hope I won’t be staring blankly at the meeting next year.

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Takeaways from Your Money and Your Man: Part 2

From Michelle Singletary’s Your Money and Your Man: How You and Prince Charming Can Spend Well and Live Rich

Part 2: Then Comes Marriage

  1. How much debt is okay when paying for a wedding? None! Weddings should be a cash affair–as in, all expenses should be paid with cash. If you use a credit card, make sure you pay the bill off in full. A wedding is a luxury, not a necessity. It’s foolish to fund a wedding on a credit card.
  2. Fast-forward ten years. What will you remember from your wedding? If money is tight, spend what money you have on things that will have “memory value,” such as the wedding photos. Trust me, if you’re still married in ten years, your wedding guests won’t even remember what type of flowers you had on the reception table or the wedding favor.
  3. Asking directly or indirectly for wedding guests to give you money to help pay for a car, home, maid service, or honeymoon is just being avaricious.
  4. Keeping a joint account is not that hard. Deep down, couple who object to joint accounts really are objecting to the notion that they might actually have to communit with their spouse about what they are spending or saving (or not saving).
  5. When you get married, treat your marriage like a financial partnership. There should be no hers or his–just ours.
  6. While it’s important to trust your spouse, that doesn’t mean you shouldn’t keep tabs on what’s going on.
  7. The reward for having joint accounts is that you can rejoice in each other’s financial accomplishments, because they become your own.
  8. If you want financial peace in your household, develop a set of House Rules to govern your financial behavior as a married couple.
  9. When you get married, it’s not all about your wants anymore. You have another person’s feelings and desires to consider. Marriage means compromising. And when you compromise, it doesn’t mean there are two losers.
  10. You’ve got to plan so you know where you are going, and that means creating a budget.
  11. If you had enough faith in your man to marry him and trust him with your life, you need to trust him with your money.
  12. Credit is a game, and you had better know the rules. If you’re going to use credit cards, you need to manage them to maximize your credit score (Major parts: 35% payment history and 30% amount owed).
  13. It’s essential that you help prepare your joint tax return. Don’t sign any forms until your review them thoroughly.
  14. Remember, on a join return both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the return, even if you later divorce. If your divorce decree states that your ex is responsible for any amounts due on previously filed joint returns, you may still be held responsible for all the tax due. If your spouse did do something improper, you can apply for innocent spouse relief, but it’s not easy to get.
  15. Before you decide to have a baby, include in your financial planning the possibility that either you or your spouse may want to be a stay-at-home parent.
  16. It is possible to live on one salary but it will take financial discipline. Before the baby comes, keep your debts down. If you can, buy a home that you can afford on one salary.