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IRA Financial Blog

Can an HSA or FSA Help Your Retirement?


There are many types of accounts that can help you save money, including HSA or FSA, and savings accounts.

Key Points
  • HSA = Health Savings Account
  • FSA = Flexible Spending Account
  • HSAs and FSAs differ in who owns them

What Is An HSA?

Health Savings Accounts, or HSAs are savings accounts that allow health insurance holders to set aside pre-tax money specifically for qualified medical expenses. While premiums are generally not permitted in this type of account, items these pre-tax dollars can be utilized for deductibles, copayments, coinsurance, and some other expenses.

High deductible health plans are normally what allows contributors to use this type of account, and one of the benefits of an HSA is that the money contributed is not taxable. WIth an HSA, account funds roll over from year to year as well, because the owner of the account is the actual person contribution the funds.

With contributions relatively high, and medical expenses a constant for many people, a Health Savings Account lets pre-tax funds be contributed which lowers the take-home pay amount, meaning lower taxes as well. Interest earned is non taxable, too, so there’s even more savings there.

What Is An FSA?

A Flexible Spending Account is a savings account that a company owns and allows health insurance holders to use, which is why it often has a “use it or lose it” caveat. Savers are not permitted to get an FSA on their own, as it must be offered by the company itself.

Items allowed under an HSA and FSA can be the same, but there is a difference in the plans themselves. FSAs have lower contribution amounts, have funds that are forfeited at the end of a year, and must be offered by the company without the ability to sign up if it is not something the corporation offers.

Different Choices

In the same way that a 401k differs from a Solo 401(k), there are different variations on health and flexible spending accounts and that can make all the difference between which is best for a given individual. In terms of retirement savings, either a Health Spending Account or Flexible Spending Account will help you reduce your pre-tax take home pay, meaning you will pay less tax on the whole.

But a Health Savings Account, or HSA, is fully yours, meaning it is not subject to the rollover limitations of a Flexible Spending Account. An HSA belongs to a person, and the money in it remains that person’s throughout their lifetime until they spend it and use it for qualified medical expenses. It is portable from job to job because it is not actually related to an employer.

An HSA is able to invest but also to pay for those medical expenses agreed to under its formation. That means that an HSA is capable of earning money and lowering medical costs at the same time, without being a tax drain. Having a Flexible Savings Account and a Health Spending Account at the same time may not be permitted, but the 401(k) and HSA can be owned at the same time. And investment strategy wants are the same between the two accounts including diversification to protect from market volatility.

Accounts In Your Favor

While there are other retirement accounts that can be considered, the Solo 401(k) is one of the best for self-employed entrepreneurs with only themselves and their spouse as employees. The Health Spending Account can be another tool in the retirement savings kit, that can help keep money available for necessary medical expenses that will come, as well as any other that are covered under the rules of the plan.

Setting yourself up for prosperity in retirement is a responsibility of each person. Learn about all the options available. Find out about different types of accounts, including amounts you can contribute, how much can be spent, how long contributions can be made, and what sort of penalties might apply depending on different actions taken by plan holders.


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