Did you know there are ways to save tax-free for both medical costs and childcare costs?! That’s where an HSA (Health Savings Account) and an FSA (Flexible Spending Account) come into play. These are programs offered by employers that allow their employees to save with pre-tax dollars, and have those savings grow and be used towards medical expenses. Each of these accounts operates similarly, but also have their differences.  

An HSA is only available for people with a high-deductible insurance plan. The gist behind an HSA is to have these funds be saved, grow, and then be used for those high deductibles anytime that there is any type of medical event – it’s a way to essentially pre-pay your deductible. The benefit to an HSA is you fund these with pre-tax dollars (so that decreases your income come tax time) and that then grows tax-free, and if it’s used for “eligible expenses” like a lot of things we have talked about, that gets to be pulled out tax-free! Another huge benefit to an HSA is if you don’t use all of those funds throughout the calendar year, those funds are able to be rolled over to the next year – and if they’re not used in that year again rolls to the next year. It’s a way to build up this huge balance to be paid for any deductibles for the rest of your life. And, say you don’t use them before retirement – you can then also use those funds in retirement to cover any healthcare costs in retirement as well, and have that be tax-free then too! 

An FSA works a little bit different – you don’t have to have the high-deductible plan. With an FSA however, it does not have the rollover option with it, it is a “use it or lose it.” So, anything you put into your FSA in 2021 has to be used by December 31st of 2021, or you lose it. With an FSA, you can set up a Dependent Care FSA and those funds can be used to cover childcare costs. You know you’re going to pay X amount of dollars a month for childcare, that’s a way to set aside money pre-tax and have that go straight towards your childcare cost.  

Of course, there are contribution limits to use these. The FSA has a contribution limit of about $2,750 this year and the HSA is around $3,600, which isn’t a large amount but hey, it’s still a way to save pre-tax, reduce your income, and have those fund be tax-free if they’re pulled out for those “eligible expenses” (which are most medical costs). If your employer offers that, that’s a good benefit to you and might be something worth considering taking advantage of. Y’all have a good one!