Understanding Your Flexible Spending Account & Health Savings Account!

Welcome to Flexible Spending Accounts Online - the #1 resource on the Internet to help you get the most from your Health Care Flexible Spending Account (FSA) or Health Savings Account (HSA)!

The good news is that while health care costs continue to skyrocket, a clean bill of health has kept money in your bank account that otherwise would have been spent on out-of-pocket medical fees.

A Flexible Spending Account (FSA), and its related Health Savings Account (HSA), are employer-sponsored benefits that enable you to pay for eligible medical expenses on a pre-tax basis. An FSA or HSA saves you money by reducing your income taxes. And contributions you make to your flex spending account (or health savings account) are deducted from your check before any of your taxes are calculated and are never reported to the IRS. The overall result? You decrease your taxable income and increase your disposable income which can save you hundreds or even thousands of dollars a year.

Especially, if you expect to incur medical expenses not reimbursed by your current heath insurance, you should definitely think about participating in an FSA or HSA if one is offered.

Caution: Potential Downsides to a Flexible Spending Account - FSA

But before you jump at enrolling in one of these cafeteria plan type program, there is a potential downside to a Flex Spending account, and it has to do with not using all of the money you set aside.

That's right – every month you set aside funds to cover your medical costs with an FSA. But what happens if you're getting to the end of the year and a chunk of change is still sitting in your FSA? Here comes the bad news … studies have shown that employees on average lose approximately $100 annually in forfeited balances within their employee health care flex spending accounts because any money remaining in your flexible spending account on Dec 31 disappears – right into the pockets of your employer.

The Good News with Health Savings Accounts - HSA

However, this "use it or lose it" issue with FSAs is not an issue with HSAs. Unlike a flex savings account, you don't lose your money at the end of the year with a health savings accounts. It simply rolls over and continues to grow...year after year, to be used for eligible medical expenses, especially those times when you have higher than expected healthcare costs. Also, an HSA is portable. If you leave your employer, no problem. The HSA is yours; you take it with you.

We know these healthcare savings and spending plans can get confusing. To inform you of the advantages and disadvantages of either a flexible spending account of health savings account, we have compiled this comprehensive resource. We hope it helps you sort through the choices and make a decision which is best for your family.