How to navigate Flexible Spending Accounts & Health Savings Accounts

    Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) allow you to set aside pre-tax money to pay for certain medical expenses. HSAs and FSAs can be helpful for covering costs that aren’t paid for by insurance, such as deductibles for doctor appointments, prescriptions, or the cab ride to a hospital.

    While these can be helpful cost-saving options, it’s important to keep in mind their limitations and conditions. Here are some FAQs to help you navigate these accounts.*

    Flexible Spending Account (FSA)

    Health Savings Account (HSA)

    When am I eligible for these accounts?

    FSA eligibility is determined by your employer. NOTE:If you are covered under a High Deductible Health Plan (HDHP), you are eligible only for a “limited-purpose” FSA, which reimburses only dental and vision expenses.

    An HSA is available only if you are covered under a High Deductible Health Plan that meets IRS standards (for example, in 2014 for self-only HDHP coverage, a deductible of $1,250 or more and annual out-of-pocket expenses of $6,350 or less). You are not eligible if you are on Medicare or if someone else is claiming you as a tax dependent.¹

    What can I spend the money on?

    Both FSA and HSA funds must be spent on medical expenses (including dental and vision). These include deductibles, coinsurance, or other out-of-pocket expenses for treatments, diagnoses, or procedures. Also included are medical equipment and supplies, and transportation to or from medical appointments. See above for “limited-purpose” FSA limitations.

    You cannot use FSA or HSA funds to purchase over-the-counter drugs without a prescription, personal toiletries, cosmetic or other procedures that are not necessary for your health, or any non-medical expense.

    Who owns the account?

    FSAs are created for you as part of your benefit plan but are owned by your employer. If you leave your employer you cannot take this account with you.

    HSAs are bank accounts or other custodial/trust accounts that are set up either by you or your employer, and are then owned by you, no matter where you work.

    How much can I contribute?

    The maximum FSA contribution limit in 2014 is $2,500 per year regardless of the size of your family. Your employer may set a lower limit.²

    HSA contribution limits in 2014 are $3,300 per year for HDHP self-coverage and $6,550 for HDHP family coverage. Employer contributions reduce your contribution limit dollar-for-dollar.¹

    How do I access the funds?

    Typically you can pay up front and then submit a receipt to get reimbursed from your account, or you can use a debit card linked to the account. Make sure that you keep receipts and records to show that the funds were spent appropriately, in case you are audited.

    Do I have to use the money the year I contribute it?

    You can use all of the funds you have scheduled to be taken from your paycheck for your FSA throughout the year before you have actually contributed all of the funds.

    Traditionally, you were required to use all the funds in the account the year you contributed them (or within 2½ months after year end if your employer elected this grace period option) or else you lost the contributions. Starting in 2014, your employer can elect either the grace period option or a new carryover option, which lets you carry over $500 of funds that are set to expire in your FSA to the next year.² Check with your employer to see if this applies to your FSA.

    Money that you or your employer contributes to your HSA is there for good. You can add and accumulate money over time and spend it during any year you are covered by a High Deductible Health Plan and contribute to an HSA.

    *Sun Life financial cannot provide legal or tax advice. If there are legal or tax questions, we suggest that you consult with your own legal or tax advisor before making insurance purchasing decisions.

    1. Internal Revenue Service, "IRS Rev. Proc. 2013-25," accessed March 21, 2014, http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.

    2. Internal Revenue Service, "IRS Notice 2013-71," accessed March 21, 2014, http://www.irs.gov/pub/irs-drop/n-13-71.pdf.

    Sources

    Internal Revenue Service, "IRS Notice 2013-71," accessed March 21, 2014,http://www.irs.gov/pub/irs-drop/n-13-71.pdf.

    Internal Revenue Service, "IRS Rev. Proc. 2013-25," accessed March 21, 2014, http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.

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