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Are you making it, too?
Key points
- It’s essential to set aside money on a regular basis to cover a host of essential bills.
- Medical issues could arise when you least expect them, and it’s important to be prepared.
- FSAs and HSAs are both good ways to set aside money for extra medical expenses with a tax advantage.
There are certain expenses we all know to set money aside for. If you own a home, paying your mortgage every month is required. And you’ll also need to make sure there’s room in your budget for expenses like food, car payments, and utility bills.
But there’s one important expense many people inevitably forget to save for: healthcare. And doing so could have seriously negative consequences.
Are you setting money aside for medical costs?
Even if you’re a relatively healthy person, you never know when you might get injured or fall ill, leaving you with hundreds or thousands of dollars in medical bills to grapple with. That’s why it’s so important to have money accessible for healthcare expenses. Yet in a recent Transamerica survey, only 77% of respondents said they have money available for medical costs, which means 23% of workers are leaving themselves extremely vulnerable.
How to save for healthcare costs
When it comes to socking money away for healthcare spending, you have options. One is to simply pad your savings account, which is never a bad thing. But doing so won’t give you any sort of tax break. And if you’d like to snag a tax break in the course of saving for healthcare, there are two different accounts you can look at.
1. Flexible spending accounts
FSAs let you set aside pre-tax dollars for medical costs. With an FSA, you must use up your balance by the end of your plan year or otherwise risk forfeiting it. Some plans will let you carry a limited amount of money from one plan year to another, but you’ll need to check the rules of your FSA to see if that’s possible. And even so, you’ll then still only have a limited window to spend down your balance.
2. Health savings accounts
If you’re enrolled in a high-deductible health insurance plan, you may have the option to participate in an HSA. These accounts are actually more flexible than FSAs because they don’t require you to spend down your plan balance year after year. Rather, you can carry HSA funds forward as long as you want, and you can invest money you don’t need right away so it grows into a larger sum over time.
Like FSAs, HSAs give you a tax break on your contributions. And if your HSA investments make money, those gains are yours to enjoy tax free as well.
You should know that you generally can’t have an FSA and HSA at the same time. If you’re eligible for an HSA, it pays to choose that account over an FSA. That said, you may be able to open a limited-purpose FSA and use it alongside an HSA, but that will depend on whether your employer offers one.
Healthcare is an expense that’s often unavoidable. And the last thing you need is the stress of racking up debt when medical bills mount. If you’re not already allocating money in your budget for healthcare purposes, it’s time to rethink your spending and expenses. And it definitely pays to build up some dedicated healthcare savings so you have cash reserves to tap for that purpose.
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