HSA Vs. FSA: Things You Need To Know About Using Them In Retirement

by Nathan Toal, HOA, CPLHI, FFMC | Originally posted on Travel Awaits

It’s a great idea to get to know the plans you have spent money on for so many years. Those are the three-letter words we actually like — HSA and FSA — which keep dollars out of the hands we don’t necessarily care for; the IRS. Your Health Savings Account, or HSA, and your Flexible Spending Account, or FSA, can be amazing tools when retirement comes around. The fact is that these plans are meant to help us with our day-to-day medical expenses, but they can become even more valuable in retirement. First, we need to see what HSAs and FSAs are and how they work in order to see how they can help us. Do you know how your spending account works?

HSA

What Is An HSA?

Simply enough, it is a Health Savings Account. An HSA is a financial account that helps you save money pre-tax for qualified health care expenses. To qualify for an HSA, you must have a High Deductible Health Plan. Not every health insurance policy can qualify for use of an HSA. The guidelines change every year and, as of 2022, they are:

You can use your HSA funds on qualified health expenses, including:

  • Most dental and vision

  • Doctor’s visits

  • Hospital service

  • Preventive care

  • Prescriptions

  • Physical therapy

  • Lab tests

  • Durable medical equipment

  • Addiction treatment

How Does It Work?

Once you get your high deductible plan started, you can start contributing to the account. You can usually do this through your bank or employer. You are limited to an annual contribution of $3,650 as a single person or $7,300 as a family, as stated above. A great detail about HSAs is you actually own the policy and the money in it. The money you put in, as mentioned before, is also contributed tax-free. These funds can also be invested in some cases and the interest you gain is also tax-free. You can withdraw funds in a pinch at a 10-percent tax penalty.

At age 55, you can contribute even more to your HSA by adding an additional $1,000 each year to your contribution. These are considered “catch-up” contributions. 

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