Medical Insurance has just become more complicated these days. I won't go into details of what type of insurance that's best fit for you but I do get a lot of questions on what FSA (Flexible Spending Account) or HSA (Health Savings Account) is and if they should utilize that. In the simplest term, FSA and HSA are ways to contribute to an account pre-tax to lower your AGI (adjusted gross income) for the year. If you can figure out ways to lower your AGI, I recommend to use it. HSA is usually only available to high deductible health insurance option and FSA is usually available with most of your health insurance plans. Sometimes if you are enrolled in the high deductible that uses HSA, you can also contribute to a limited contribution FSA as well.
My recommendation for my clients usually is if you get sick a lot, it might serve you better to choose the high premium medical insurance so you only pay a co-payment but if you don't, I would rather you pay a lower premium and max out on your HSA (assuming all your other higher priority goals like savings, debts and emergency fund goals have been taken care of). Sometimes companies even contribute money as incentives to get you enrolled in a high deductible insurance. A lot of people usually get turned off that they have to pay full price till the deductible is met hence they won't enroll in this but if you are a fairly healthy person and you don't see yourself going to the doctor more than two or three times that year, enrolling in this plan might save you more money. How? First, it lowers your AGI by $3,350 for single and $6,750 for family, which is equivalent to about $1k to almost $3k in tax savings for the year depending on your marginal tax rate. The other benefit of HSA is that you can keep carrying over the balances to the following year unlike the "use it or lose it" option for FSA. Plus the fact that you can bring your HSA funds with you whenever you switch jobs and you can keep maxing out the benefits till you retire AND you can also invest inside the account. Later, you can use the money as part of your after-tax medical cost income during retirement. Another way to think about this is it provides tax benefits of both 401(k) and a Roth IRA's. I always encourage clients to think of this as another valuable 'savings' vehicle that they can use for retirement.
Feel free to make a comment or like and share this blog if you found it helpful. ☺️
Thank you,
Christine Teh
Teh Financial Coaching
My dream is for all my clients to attain Financial Freedom
My recommendation for my clients usually is if you get sick a lot, it might serve you better to choose the high premium medical insurance so you only pay a co-payment but if you don't, I would rather you pay a lower premium and max out on your HSA (assuming all your other higher priority goals like savings, debts and emergency fund goals have been taken care of). Sometimes companies even contribute money as incentives to get you enrolled in a high deductible insurance. A lot of people usually get turned off that they have to pay full price till the deductible is met hence they won't enroll in this but if you are a fairly healthy person and you don't see yourself going to the doctor more than two or three times that year, enrolling in this plan might save you more money. How? First, it lowers your AGI by $3,350 for single and $6,750 for family, which is equivalent to about $1k to almost $3k in tax savings for the year depending on your marginal tax rate. The other benefit of HSA is that you can keep carrying over the balances to the following year unlike the "use it or lose it" option for FSA. Plus the fact that you can bring your HSA funds with you whenever you switch jobs and you can keep maxing out the benefits till you retire AND you can also invest inside the account. Later, you can use the money as part of your after-tax medical cost income during retirement. Another way to think about this is it provides tax benefits of both 401(k) and a Roth IRA's. I always encourage clients to think of this as another valuable 'savings' vehicle that they can use for retirement.
Feel free to make a comment or like and share this blog if you found it helpful. ☺️
Thank you,
Christine Teh
Teh Financial Coaching
My dream is for all my clients to attain Financial Freedom
RSS Feed