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Live longer with these IRS-approved accounts

Live longer with pre-tax accounts

There are multiple methods touted by professionals and pundits alike claiming to make you live longer: Spend less time sitting. Avoid simple carbs. Have at least one cup of coffee a day. Drink water. Laugh often. Practice mindfulness. Read a new book every month.

The tips indicating what you “should” do to live a longer, healthier life is pretty wide. So, instead of giving you another “should,” we’d like to present a simple suggestion to help you live longer. It’s a way you can improve something we’re pretty sure you’re already doing.

No extra work. Just extra savings.

Use your FSA and HSA to live longer ?

We assume you go to the doctor’s office and the dentist at least once a year. You or someone in your household is likely to have glasses or contacts. You may even occasionally find yourself in urgent care or the emergency room. (Hopefully less than once a year.) Since you already go to these places regularly, might we suggest that, you use a pre-tax benefit account to help pay for these expenses you already have?

An introduction to FSAs and HSAs

Many employers offer some kind of pre-tax benefit account. Two of the most common accounts are a Medical Flexible Spending Account (also known as an FSA or cafeteria plan) and a Health Savings Account (HSA). A Flexible Spending Account gives you all your money on the first day your benefits kick in, but you may lose money you don’t use by the end of the year (or as described by the plan). In order to have an HSA, you need to be enrolled in a Qualified High Deductible Health Plan. You put money into the account with each paycheck, so it grows a little slower, but you can keep it from year to year and even invest it.

Maximize your savings by estimating your needs

All pre-tax benefit accounts were established under the Internal Revenue Code. They allow you to set aside money via payroll deductions (much like a 401(k)). The money in your account(s) can be used for medical and/or health purposes (with certain restrictions). When you combine the fact that you’re already going to the doctor’s office with a pre-tax benefit account, you’re guaranteed savings. Granted, the savings will vary, but here is a quick run-down of how to calculate your savings. You can also use the equation below:

(Total sum of medical expenses for the year) x (Your tax rate) = Expected annual savings

  • Example A: ($500) X (.30) = $150
  • Example B: ($1,000) x (.30) = $300
  • Example C: (2,000) x (.35) = $700

How much will you save?

What can I buy?

There’s a lot of freedom in what you can pay for with your accounts, including the life-saving items and services below:

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  • ambulance 
  • asthma devices
  • cancer screenings
  • CPAP and oxygen
  • diabetic supplies, including insulin

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  • vision expenses (exams, glasses, contact lenses, Lasik)
  • vaccinations
  • physical exam
  • transplants
  • …and more!

The list above barely scratches the surface of eligible items. There are also some really weird items you can pay for that are considered eligible expenses. (We’re not sure all of them will help you live longer, but it’s good to know they’re out there.)

Speaking of things that are good to know… There are some limitations how much money you can put into an account.

How much money can I put in an account?

Although your FSA and HSA can help you live longer, they unfortunately aren’t bottomless pools of money. You can only set aside so much into each account on a yearly basis. Also, you can’t have both accounts at the same time. Each year, the IRS releases the maximum amount of money you can put into your pre-tax accounts. The amount usually goes up a little every year to account for inflation.

The maximum you can put into a Medical Flexible Spending Account for 2018 is $2,650 (although employers can set lower limits). The 2019 FSA limits have not been released yet. If you have an HSA,  in 2019, you can put up to $3,500 into the account for single coverage and $7,000 in the account for family coverage. This is up from $3,450 for single coverage and $6,900 for family coverage in 2018.

Great! How can I sign up for all these accounts?

Flexible Spending Accounts and Health Savings Accounts can be great savings vehicles for savvy consumers. But there are some elements of these pre-tax IRS accounts that aren’t necessarily user-friendly.

For starters, you can’t have an FSA and an HSA at the same time… unless the FSA has been converted to a Limited FSA.

What’s the difference between a Medical FSA and Limited FSA?

A Medical FSA can be used to pay for all medical and health expenses (as allowed by the IRS and your employer) while a Limited FSA can only be used to pay for vision and dental expenses. But the trade off is that if you have a Limited FSA, you can also have an HSA. So you end up being able to double-up on pre-tax savings and having all health expenses covered between the two accounts.

Finally, in your quest to live longer, one more type of FSA you might want to look into if you have kids under 13 is a Dependent Care FSA (DC FSA). A DC FSA can help you live longer because it allows you to pay for daycare. That gives you one less thing to think about (and you’re paying for it tax-free, so you’re also saving). You can have a Medical FSA and DC FSA at the same time. If you’re interested in comparing the two accounts, check out this blog post.

Open Enrollment: Your ticket to live longer

Most people sign up for their life saving pre-tax benefits during Open Enrollment. It’s like a once a year party when everyone in your company signs up for their health insurance and other benefits, like their pre-tax accounts.

Often, Open Enrollment happens between October and December each year. However, it can vary by employer. Before Open Enrollment occurs, make sure you have all the answers you need in order to sign up for the right account(s).

Once you know when Open Enrollment is, mark your calendar so you can to start saving and live longer.