I wanted more info on opening a flexible spending account for medical expenses. I dont know much about them except that I should have one. How does it work? I would love to get one up and running for 2011! How much do you budget per person? -Mary
I have received numerous emails regarding setting up a IRS-approved savings account for medical expenses after my post a couple of weeks ago on HSAs. Right now, my understanding is there are several options: the Flexible Savings Account (FSA), the Medical Savings Account (MSA) and the Health Savings Account (HSA) (See IRS Pub 969)
I do not know much about the FSA, as I have personally never had one. My understanding is that you set aside a certain amount each month for qualified health expenses and that, if you do not use all the money you have set aside by the end of the year, you lose whatever you have left because it does not roll over and accumulate into the next calendar year.
Because I didn’t want the hassle of trying to guess what expenses we would have over a year’s period of time and I didn’t like the idea of losing money we do not use, I didn’t even look into the possibility of opening an FSA. Instead, we elected to open up an HSA, which would allow us to keep the money we put in over the course of a year (up to $6150, married filing jointly for 2010) that would then be tax deductible on our 2010 return.
The MSA is similar to the HSA, but created for the self-employed or employees of small businesses. To open the HSA, I called a local broker who sold a variety of health insurance products from a number of different companies so I could get a good match for us that qualified under the IRS’s guidelines for a High Deductible Health Plan.
Once we got the health insurance side squared away, I contacted a local bank that had a Health Savings Account product, into which I put our annual contributions. The money in this account, if unused for medical expenses, rolls over annually and continues to build and grow interest.
I take what we would probably pay for regular PPO coverage, subtract what we currently pay for our HDHP coverage and put the rough balance in our HSA. At this stage, the annual contribution allowance covers the high deductible we have on our health plan, so we would technically not be out of pocket anything if we had a major medical condition that wiped out our deductible because our plan covers 100% above our family deductible. (Some HSAs are 80/20 instead of 100, but I wanted to stay away from something that would leave us exposed to liability in the event we maxed the deductible.)
As of now, I have been very pleased with it and it is amazing how much more aware we have become with our medical needs when we are on the hook for most expenses.
Jesse Paine is a licensed attorney who owns his own law firm. He’s married to Crystal and is the numbers nerd of the MoneySavingMom.com team! If you have a question you’d like him to answer in a future column, you can submit it here.
The content of this column intended for informational use only and is not to be construed as providing legal, investing, accounting, or other professional advice. Your situation is factually specific and you should accordingly seek qualified professional counsel concerning your specific legal, investing or accounting needs.
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