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Can I use my own money to help lower my healthcare costs?

You can use your own money to lower your healthcare costs by paying for your healthcare expenses using tax-exempt funds. There are two types of accounts -- Health Savings Accounts or HSAs and Flexible Savings Accounts or FSAs -- to which you can contribute your own money pre-taxes to use those funds to pay for qualifying medical expenses. 

HSAs are tax-exempt medical savings accounts available if you are enrolled in a high deductible health plan. The funds contributed to the account aren't subject to federal income tax at the time of deposit. The maximum allowed contribution from you and your employer for an individual plan is $3,350, and for a family plan, $6.750 (maximum amounts are subject to change annually). Here are some of the benefits of an HSA.
  • You can claim a tax deduction for contributions you or someone else (other than your employer) make to your HSA even if you do not itemize your deductions on your annual tax forms.
  • Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income, reducing the amount of income on which you need to pay taxes.
  • The money remains in your HSA until you use it, and it can roll over from year to year. There is no "use it or lose it" provision with HSAs as there are with other types of medical expense accounts.
  • The interest or other earnings on the money in the account are tax-free. 
  • You do not have to pay taxes on the money when you use it for qualified medical expenses.
  • Your HSA account is portable; it stays with you if you change employers or leave the workforce.
  • HSAs can also provide one strategic method for saving for retirement. After age 65 the money in your HSA can be withdrawn and used for purposes other than covering your medical expenses at no penalty, although those withdrawals may be subject to income tax.
FSAs are employer-sponsored accounts to which you can contribute a portion of your income pre-taxes, usually as an automatic deduction from your paycheck. You can use these funds to pay for certain out-of-pocket health care costs that you estimate you will have in the coming plan year.
  • You can contribute and withdraw up to $2,550 per year, in accordance with rules established by the Internal Revenue Service (IRS). This limit is indexed to inflation and subject to change each year.
  • As you incur FSA-eligible expenses throughout the year, you can use the funds in your FSA to pay for them tax-free, saving money.
  • The IRS has a use-it-or-lose-it provision that requires employees to use up or forfeit their FSA funds by the end of their plan year. Some employers offer a grace period beyond the plan year or allow employees to carry over part of their FSA funds to the next year. Read your FSA plan documents carefully to be sure you understand how your particular FSA works. 

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.