If you're confused and overwhelmed by your benefit options, you're not alone. When open enrollment approaches, you may find yourself asking:
- Am I taking advantage of all the benefit options available to me?
- I keep hearing about tax-advantaged benefit accounts, what are they?
- How can these benefit accounts help me?
Don’t worry, we’re here to help. Let’s start with the basics.
What are tax-advantaged benefit accounts?
There are several types of tax-advantaged benefit accounts, all of which are designed to provide you more control over your hard-earned dollars and help you save on out-of-pocket healthcare costs.
- Flexible spending account (FSA): An account that lets you set aside pre-tax dollars to pay for healthcare expenses not covered by your health insurance plan. You, and in some cases your employer, may contribute to the account. The funds in the account must be used during the plan year.
- Health savings account (HSA): An account that lets you set aside pre-tax dollars to pay for current and future healthcare expenses. You, and in some cases your employer, may contribute to the account. The funds in the account roll over year to year and can be invested, allowing your money to grow tax-free. You own the account, so if you leave your employer, the funds travel with you.
- Health reimbursement arrangement (HRA): An employer-funded account that can be used for pre-defined healthcare expenses. Only your employer may contribute to the account.
How can tax-advantaged benefit accounts help me?
These accounts can:
- Help you save money. One of the biggest advantages of enrolling in a tax-advantaged benefit account is that is saves you money. These accounts let you set aside money, pre-tax, to pay for common healthcare expenses. By using pre-tax funds, you reduce your taxable income, which means you get to keep more of your hard-earned dollars.
- Help you stay healthy. These accounts let you set aside funds for preventative, routine, and unexpected care for not only you but also your family – making it easy to take care of health and wellness needs.
- Help you achieve financial goals. Growing healthcare costs is a major concern for most people today. These accounts help you manage and prepare for expected, as well as unexpected, out-of-pocket healthcare expenses.
Why should I enroll in a tax-advantaged benefit account?
If you’re going to spend even $1 out of pocket on healthcare expenses next year, you should enroll in a tax-advantaged benefit account. Depending on your expenses and tax bracket, by opening and funding an account you can save hundreds or, in many cases, thousands of dollars.
The bottom line
Tax-advantaged benefit accounts offer big savings. You are most likely already budgeting, saving, and investing as part of your personal financial plan, and these accounts can play a vital role in helping you achieve your financial goals. Don’t overlook key benefit options that can work to your advantage. Get the most value from your benefits plan by enrolling in a tax-advantaged benefit account.