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Usually, you have to choose between an HSA and an FSA. But read on to learn about those rarer cases when you might be able to have both simultaneously.
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Medical bills can be burdensome, and it’s important to have money in savings to cover them. But sticking money in the bank to pay for healthcare costs is by no means your only option. There are different tax-advantaged accounts you can open to save for medical spending.
One such account is a flexible spending account, or FSA. With an FSA, you’re generally required to use up your plan balance every year or otherwise risk forfeiting your money. But the upside is that contributions are made tax-free.
You could also, if your health plan is eligible, save for medical costs in a health savings account, or HSA, which also allows for tax-free contributions. And HSAs don’t require you to use up your plan balance every year. In fact, you’re encouraged not to, because you can invest leftover funds to grow your balance into a larger sum.
HSAs are harder to qualify for than FSAs. With an FSA, anyone can participate. For an HSA, your health plan has to meet certain requirements.
This year, for example, your health plan needs to have a minimum deductible of $1,500 for self-only coverage and $3,000 for family coverage. Your plan also must have an out-of-pocket maximum of $7,500 for self-only coverage and $15,000 for family coverage.
You may be interested in opening an FSA and an HSA. For the most part, you can only have one at a time — but there is an exception to that rule.
You may be eligible for a limited-purpose FSA
Although you generally cannot save in an FSA and HSA simultaneously, you may be eligible for what’s known as a limited-purpose FSA if you have an HSA. A limited-purpose FSA allows you to set aside money to cover dental and vision expenses specifically. And in some cases, you may be able to use a limited-purpose FSA to cover general medical expenses once your deductible has been met.
However, this depends on the rules of your plan, and also whether your employer allows it. You’ll need to review your options with your benefits department if you’re interested in having an FSA and HSA at the same time.
Is a limited-purpose FSA even worth it?
A limited-purpose FSA could be worth it for one big reason: It affords you the opportunity to leave your HSA alone when dental and vision expenses arise. Remember, one benefit to saving in an HSA is that you get to invest funds you aren’t using so your balance can grow into a larger sum over time. And any investment gains you snag in your HSA will be tax-free, too.
So let’s say you open a limited-purpose FSA that only allows you to spend on dental and vision expenses, and you encounter a $500 dental bill. If having that account makes it so you don’t have to take a $500 HSA withdrawal, that’s an extra $500 you can keep invested.
Now, if you don’t anticipate having many dental and vision expenses, then a limited-purpose FSA won’t make sense, since that money will need to be used up within the year or otherwise be forfeited. But if you have reason to believe you might spend money on dental and vision expenses, then it could pay to open a limited-purpose FSA and contribute a small amount if that option is available to you.
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