Healthcare Tax Savings
If you have access to health savings accounts (HSAs) or flexible spending accounts (FSAs) at your new job, it can save you taxes to take advantage of them. They are analogous to a savings account for healthcare expenses. Enrollment in them has 4 primary benefits.
First, both types of accounts reduce your taxable income. If you allocate $50 per month to either type, the $50 is taken out of your paycheck pretax. It is not taxed when you take it out of the HSA or FSA account, either. This has immediate benefits to you, in that the specific money you’re allocating isn’t taxed. But, of course, it also lowers your taxable income overall, so has the potential of lowering your tax bracket.
Second, the interest on HSAs is never taxed either.
Third, an HSA always travels with you. If you don’t use all the money you’ve put toward it in a given year, you can roll it over to the next year. This is true even if you change employers: the money belongs to you, after all. You can roll HSAs over into retirement as well. An FSA, by contrast, is “use it or lose it”: if you don’t use all of it in a year, you no longer have it. It doesn’t go with you if you change employers.
Fourth, each can be used to pay for a wide range of health payments. You can use an HSA or FSA to pay for health insurance deductibles, visits to the doctor, prescription medications, and a wide array of healthcare equipment, from bandages to knee braces. Check into plans available to you to see the full set of options.
When determining what you want to contribute to either type of account, it’s a good idea to get an idea of your spending on health and medical over the past 5 years and average it.