Another way to plan for the upcoming tax year is to establish a Health Savings Account (HSA) or enroll in an employer sponsored Flexible Spending Account (FSA).
As defined by Healthcare.gov, “A Flexible Spending Account (also known as a flexible spending arrangement) is a special account you put money into that you use to pay for certain out-of-pocket health care costs. You don’t have to pay taxes on this money if it it used for eligible expenses. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
You can use funds in your FSA to pay for certain medical and dental expenses, including copayments and deductibles. FSAs are available only with job-based health plans. Employers may make contributions to your FSA.”
One caution with FSA accounts: They are often “use it or lose it” arrangements, Meaning, if you don’t utilize the money you contribute within the calendar year, it’s gone when the calendar turns.
According to Chase Squires in his Signator Investors Insights article “Review FSA, HAS Planning Sooner, Not Later,” An HSA is more like an Individual Retirement Account (IRA) for health costs.
HSA plans are tailored for those who are enrolled in high deductible health care plans. Those eligible can set aside up to $3,350 of tax-deferred funds each year (2015 Federal limit), which has the potential to grow free from taxation and can be only spent on medical expenses. These funds roll over year after year.
After age 65 however, the money invested in an HSA can either still be spent tax-free on health expenses or withdrawn for any use and taxed based on current income. HSA accounts can be set up at most banks and give those who max out contributions to their 401(k) or IRAs an opportunity to save another $3,350 tax free each year.
This information is general in nature and should not be construed as tax or legal advice. Neither Signator Investors. nor its Representatives may offer tax and/or legal advice. Please consult your tax and/or legal adviser for guidance on your particular situation.