The IRS released the new changes for HSA and FSA accounts for 2021.
The HSA, Health savings account, is a tax-free way to save money for medically related expenses. HSAs are typically offered through employers that also have high-deductible insurance plans.
The amount of money for account holders for family plan that can be contributed for 2021 is $7,200, up from $7,100 for 2020. Individuals with single plan can contribute up to $3,600 for 2021, up from $3,530 for 2020. Savers who are 55 and older can contribute an additional $1,000.
The first benefit of an HSA is that any money in the account will be rolled over to the next year. A second benefit is that the money contributed to an HAS is not subject to tax, social security, or medicare taxes. The third benefit is that the money can continue to grow tax free until you need it for medically-related expenses, or for retirement.
A healthcare Flexible Spending Account (FSA) can be used for healthcare -related expenses as well and are not subject to taxes. However, the disadvantage is that the money must be used by the end of the plan year or it will be lost forever. In some cases, a company may offer a FSA that can rollover but the maximum amount that can be rolled over to the next year is $550.
So, you must figure out how much money you think you are going to use the following year in an FSA so that you do not actually lose your money at the end of the year. There have been a few years where I spend the last few days buying contacts, contact lens solution, or other approved items so that I simply do not lose my money.
If you have specific questions, be sure to reach out to your HR Benefits department or the plan provider. They should help you make the best decision for you and your family.