The arrival of December often triggers the onset of a mild panic attack for many individuals. We’re not referring to the anxiety that tends to accompany the hustle and bustle of the approaching holidays. For many pre-tax benefit account holders, December marks the final month of benefit coverage in the current plan year. Participants in FSAs, HRAs and even HSAs begin to evaluate their account balances. But, what exactly happens to HSA funds at the end of the year?
To understand this fear, it is best to start at the beginning. Flexible Spending Accounts (FSAs) began in November 1978. Individuals became conditioned to use up their balance or risk possible forfeiture of unused funds. This historical perspective of pre-tax benefits often makes the task of determining an accurate annual election especially daunting.
In 2003, Health Savings Accounts (HSA) were established, bringing forth a new pre-tax plan option that effectively eliminated the concerns over lost funds. If you are an HSA account holder, we trust that these unique “safety features” put your mind at ease (as long as you know what they are)!
No “use-or-lose” provision
Unlike other types of medical spending accounts, HSAs are not subject to the “use-it-or-lose-it” provision that would cause you to forfeit any unused funds by the end of the year. And, as a portable account, the HSA remains yours even if employment changes.
Rollin’ rollin’ rollin’
If you have any money left in your HSA at the end of the year, it will continue to roll over year after year. That means that your unused contributions will keep accumulating until you need them. PLUS, balances earn interest or can be invested. This is especially great news for individuals looking to prepare for future healthcare expenses or those concerned with their coverage in retirement.
Sky’s the limit!
Not only do HSAs offer the ability for your balance to grow by rolling over, but you are able to set aside money at a greater rate. Annual contribution limits for pre-tax accounts are determined by the IRS. Comparatively, the pre-tax limits for an HSA far exceed the allowable limits for an FSA. If there’s any risk, it would be that you find yourself under-contributing to your HSA – but we highly doubt that!
That leads us to the final HSA “safety feature”…
Freedom to change
Health Savings Accounts offer the unique ability to adjust contributions outside of a typical open enrollment period. While employers may opt to limit the frequency of changes to once per month for administrative purposes, there are no other restrictions on changes. This means, that if a new heath need arises, you have the freedom to increase your pre-tax contributions. Alternatively, if money is tight, you can cut back a little. You are in control.
What is your plan for your HSA funds this year?
So, as you evaluate the close of another year, we challenge you to start a new tradition. Rather than use your remaining HSA funds, consider contributing the HSA maximum and let it ride.