Your health insurance doesn't cover everything. Most plans have co-pays for prescriptions and doctor visits, and you also have to spend a certain amount of your own cash before you get full coverage, in the form of a deductible.
For most small employer plans, deductibles now average about $2,000 a year, according to benefits consulting firm Mercer. That's double what deductibles were a decade ago.
If you have high medical costs, or think you may need high-cost care like surgery or you're planning to have baby — it pays to put cash aside for those out-of-pocket costs pre-tax.
There are two kinds of tax-advantaged savings accounts that let you put money away for health care needs, depending on what kind of health plan you have.
Most large employer plans with lower deductibles offer flexible savings accounts, or FSAs.
They let you put away up to $2,700 for an individual this year, or $5,000 for a family through payroll deductions.
There's a catch with FSAs: you have to sign up during your company's open enrollment period, or during a special enrollment period if you have a life event like getting married or having a newborn.
The other thing to know about FSAs is that you need to figure out how much you'll use. Under federal tax rules you can only roll over $500 a year, so if you don't use your savings, you'll lose that money.
For high-deductible health plans from employers, or that you buy on your own, there are health savings accounts, or HSAs.
How do you know if you're in an HSA-eligible plan? For 2019, plans with a minimum of deductible of $1,350 for an individual and $2,700 for a family are eligible.
How much can you save? Up to $3,500 this year for an individual, and up to $7,000 for a family.
Under tax rules a Health Savings Account is a lot like an IRA savings account. You can usually contribute any time of the year, and the money you don't use rolls over from year to year.
And just like an IRA you can invest HSA money if you don't need it now, and let it grow tax-free. When you withdraw that cash for health expenses at a future date, you will not have to pay taxes on any of the gains from those HSA investments.
You can use the accounts to pay for co-pays on health care visits and prescriptions, as well as out-of-network care.
You can also use the accounts to pay for a wide range of everyday health needs — ranging from diabetic supplies, dental needs like braces and even prescription glasses.
So, if you're at the end of the year and still have money left over in your flexible savings account, you can always use the cash on a new pair of specs so you don't lose it.
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