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Health Savings Plans (HSA) are a powerful savings tool that could work in conjunction with your health plan if you participate in a High Deductible Health Care Plan.
The IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family (2019).
An HSA allows for the participants, as a single member or as a family, the contribution of an annual amount on a pre-tax basis intended for qualified medical expenses. This tax advantaged medical savings account is a powerful tool that when used and funded correctly, could aid in your long term financial planning.
The first question that Federal Employees ask us about HSA’s are, “Are they use or lose?”
The reason we are asked this so often is that an “HSA” sounds a lot like an ‘FSA’ plan and it can be easy to get those terms and their rules confused.
Health Savings Plans (HSA’s) are different than Flexible Spending Plans (FSA’s). As a Federal Employee, your health care coverage is the greatest benefit that you have which is why it is critical to understand your options and the differences in plan selections.
A FSA account allows you to put in money on a pre-tax basis to help pay for medical expenses. People generally use funds in this account for medical expenses that FEHB does not cover. However, FSA plans have rules about carryovers and are use or lose accounts. Always remember what the ‘S’ stands for here, ‘Spending’. These accounts are designed for the funds to be spent, not saved long term.
If you have frequent medical expenses and are not worried about spending the funds in the account each year, this may be a good option for you or your family.
However, if you have infrequent medical expenses regularly and participate in a High Deductible Health Care Plan, an HSA might be worth considering for your long term planning.
Health Savings Plans (HSA’s) are not use or lose plans. They are savings accounts for medical expenses that you can fund on a pre-tax basis up to the annual limit.
The funds that you deposit into your HSA can go toward qualifying medical expenses. You can also save them for later in life for qualified medical expenses. This is a fantastic benefit. We will talk a little more about how an HSA can assist you in Financial Planning.
To be eligible to participate in an HSA, you have to be enrolled in a High Deductible Health Plan (HDHP). With an HDHP, participants generally pay a lower monthly premium. They do so knowing that when they need to use their benefits, their deductible will be high. As mentioned, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family.
HSA Plans requires your enrollment in a High Deductible Health Care Plan.
Medicare, TriCare, Veterans Choice & CHAMPVA are not considered High Deductible Health Care Plans.
Therefore, Federal Employees enrolled in these programs cannot participate in a Health Savings Account.
When we meet with Federal Employees we talk about their health history, past, present, and any concerns they have.
If they are generally healthy and see their medical doctor infrequently, we have a conversation about participating in FEHB’s High Deductible Health Care Plan. With the FEHB High Deductible Health Care Plan, they can participate in a Health Savings Plan.
Since their premiums under the High Deductible Health Care Plan are lower, we advise funding the Health Savings Plan. In the event that the Federal Employee has a qualified medical expense, they can use the funds in the HSA to pay for those medical expenses.
FEHB HSA plans also allows you to invest the monies within the account. When we work with Federal Employees we generally recommend that if they want to invest the monies they have saved inside of the HSA plan that they keep at least the amount of their deductible in cash for the next 3 years. Or, they should have the means to pay the deductible outside of the account. This way, if life throws you a medical “curveball” there are funds set aside to meet your deductible.
If you are the type of person or family that does not normally have regular medical expenses, participating in a Health Savings Plan allows you to put aside funds on a pre-tax basis.
When you want to withdrawal those monies for qualified medical expenses you can do so rather easily.
This is a powerful tool that allows you to set aside monies on a pre-tax basis for future medical expenses. As a person ages, their medical expenses tend to increase significantly. Allowing these funds to grow could be a powerful tool to help with the rising costs of medical care in retirement.
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Get the most out of your federal retirement benefits by taking advantage of the FERS resources created by Micah Shilanski, CFP®, and the team of independent financial advisors at Shilanski & Associates, Inc. Join the thousands of federal employees who trust us to guide them in their retirement planning journey because of our unique perspective of how your FERS benefits contribute to your comprehensive financial plan.
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