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Tax Advantaged Health Savings Plans


There are a variety of tax advantaged health savings plans which can help maximize the value of dollars you spend on medical expenses.

As a person who is more likely to have health expenses than the average person, it is in your interest to consider health savings plans. At the least, you get to use pre-tax dollars to pay for health expenses without having to meet the threshold that has to be satisfied before you get a tax break for medical expenses on your tax return. Without a health savings plan, medical expenses are not deductible until they equal at least 10% of your adjusted gross income. (In the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers.) Once you meet the threshold, expenses below the threshold are not deductible. Only medical expenses above the threshold are deductible. To learn more, see: Medical Expenses.

Following is a list of the plans which permit use of tax advantaged money for health expenses and a general overview of each. All the plans include a tax break for moneys you contribute. Employer contributions, if any, are not counted as taxable income to you. If the money is spent on qualified medical expenses, it is not taxed as it comes out of the plan. If you have a choice of more than one plan, look for the one that best fits your situation. For information about a health savings plan, including information about how to maximize use of the plan, click on the link.

  • Flexible Savings Accounts (FSA)
    • Employer established. Self employed people are not eligible.
    • Generally employee funded. Employers can contribute.
    • Money not spent by end of the applicable time period is lost.
    • Unused FSA balances of funds contributed by employer are forfeited to the employer if the employee leaves, or goes on disability or changes jobs.
    • Entire amount is available from day one even if account is not then fully funded.
    • Money cannot be used to pay health insurance premiums.
    • Two types of accounts: Health Care. Dependent Care. Funds are taxed and likely penalized if spent for other than medical expenses.
  • Health Reimbursement Arrangements (HRA)
    • Established and funded solely by employer.
    • Funds cannot be used for any other purpose.
    • At the employer's discretion, employees may take funds if leave employ or go on disability.
  • Health Savings Accounts (HSA)
    • You must have a High Deductible Health Plan (HDHP).
    • You must be under age 65 and not have Medicare (even though you may be eligible for it.)
    • Can be employer provided, employee obtained if not offered by employer. Also works for self employed.
    • Employees may take funds with them when they leave, including going on disability, or change jobs.
    • Funds can roll over from year to year. Earnings in the account are tax free. Can be used as retirement funds with unspent dollars.
    • Funds can be used to pay for health plan premiums while unemployed.
    • Limits are set by statute which are higher than Medical Savings Accounts.
    • Funds are taxed and likely penalized if spent for other than medical expenses.
  • Medical Savings Accounts (MSA) (also known as Archer Medical Savings Accounts)
    • New accounts can no longer be opened.
    • For employees of small businesses and self employed.
    • You must have a High Deductible Health Plan (HDHP).
    • Employer or employee make contributions: not both.
    • Funds can be rolled over from year to year.
    • Funds can be used to pay for Long Term Care Insurance. Also to pay for health insurance while unemployed.
    • Employees may take funds with them when they leave, including going on disability, or change jobs.
    • There are limits which are set by statute.
    • Funds are taxed and likely penalized if spent for other than medical expenses.

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