Choosing HSA or FSA At Open Enrollment

September 05, 2017

In the past 7 months, my daughter has had two concussions, a bruised ankle, a broken elbow and a black eye from being accidentally hit by a friend. “Accident-prone” doesn’t quite seem to cut it anymore in describing her and our constant trips to urgent care.

In fact, she is so well-known at our local clinic that our conversations with the staff are now about updates on the staff’s kids’ sport and family activities. I am so envious of my colleague Michael, who mentioned that his goal is to have over six figures in his health savings account. With my family, I consider it successful if we have a nickel left at the end of the year.

The medical savings account we use these days

I currently have a Health Savings Account (HSA) where I contribute the maximum amount annually (along with the help of my employer), since if I do not use the funds (although this year, with my daughter’s track record, I probably will) they roll over to the next year indefinitely. I don’t have to spend any time figuring out how much I will be spending on medical expenses, since there is no deadline to spend the money on qualified costs.

One of the benefits I really like is that the funds can be used for medical expenses for me, my husband or my daughter, even though my husband and daughter are not on my healthcare plan. But if we happen to have a year of perfect health, I’m not out the money I put into my HSA because it’s mine to keep for future years, even if in the future, I switch to a plan that’s no longer eligible for HSA contributions.

If you have a Flexible Spending Account instead

When I had a Flexible Spending Account (FSA), I had to be a lot more thoughtful about how much I contributed, since I could only roll over $500 and only for one year. Nowadays technology makes it a little easier to help you decide how much to contribute, but you still have to be careful not to put too much in.

How to determine what amount to elect for your FSA

To determine how much to contribute, I did a search using online banking for any health-related costs like medical, dental, vision and prescriptions. I looked over the past two years to make sure I was getting a good average. I also accounted for unusually high expenses (like our two car accidents within 6 months of each other — so maybe my daughter’s accident proneness is hereditary) to average about how much I spent annually. Since I can rollover up to $500 if I go over, I usually rounded up a little.

Regardless of which type of account you use, make sure you take advantage of the ability to pay for qualified medical expenses tax-free. As my colleague Kelley likes to say, it’s perfectly legal (and totally advisable) to avoid taxes, it’s just illegal to evade them. Take advantage off all the ways to avoid taxes that you can!

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How to Budget for Child Care

January 17, 2017

I was flipping through old pictures of my children and came across the one above. My daughter, now 7, was about 10 months old in this picture. My friend needed a baby for a photo shoot and I volunteered my daughter if I could get copies of the photos. This picture is one of my favorites.

As I think back to when she was a baby, I can’t help but think of how expensive that time in our lives was. In fact, I used to call her my little mortgage payment. With the average cost of childcare for an infant easily exceeding $10,000 a year, many parents struggle to budget for it. The following strategies can help take the financial bite out of child care:

1. Create a budget to see exactly how much you can spend on child care. Look for items you can cut back on such as cable, eating out or entertainment.

2. Once you have created your budget, decide how much you can reasonable afford for child care. Contact your employer to see if they offer a child care search services. Research childcare options that meet your budget. A private nanny may be out, but a quality daycare facility may fit into your budget. A friend of mine did her budget and realized that it was cheaper for her to stay home rather than put her children in daycare.

3. Once you have narrowed potential childcare providers, ask about discounts. You may be able to get an employee discount or a discount based on where you live or if you have multiple children attending the same daycare. If your income is limited, contact your child care provider or your state’s Child Care Program Office about financial assistance.

4. Consider using employer savings plans like a dependent care FSA to save money for daycare pre-tax or claiming a dependent care tax credit on your taxes. Since you can’t use both on the same expense, weigh your options to see which one is better. In general, a dependent care FSA is better for higher income earners (above the 15% tax bracket) and the dependent care tax credit is better for lower income wage earners.

Don’t let yourself get overwhelmed by the cost of daycare. With a little bit of planning, childcare does not have to bust your budget. A little bit of research can go a long way to helping you find the best childcare option for your needs.

How to Pay for Unexpected Dental Expenses

December 05, 2016

Last week, I cracked a molar, the second time in two months, and my dentist just informed me that the only way to prevent more of this going forward is to get braces. My total costs for dental care not reimbursed by my insurance carrier this year exceeds $3,000, and the cost of braces could be up to $10,000 over the next few years. Needless to say, I was not expecting this at all. I’ve taken great care of my teeth my entire life. However, as an apparent consequence of having kids in my forties (which caused my teeth to move during pregnancy) three years of teenage braces have been undone, causing stress fractures in my teeth when I bite.

Perhaps I should have expected it though. Unexpected dental expenses happen. In fact, they are more common than not, so perhaps they should be considered “expected but unpredictable” — and expensive. On the average, per an American Dental Association (ADA) study, only 48% of dental expenses are financed by private insurance.

The typical dental insurance plan is capped at $1,500 in coverage per year. If you have an unexpected dental expense that you aren’t financially prepared for, how can you handle it? Here are some ideas:

Flexible spending account

An FSA is a tax-advantaged account at work to which you can contribute up to $2,600 in 2017 from your paycheck in order to pay certain medical and dental expenses. If you already contribute to an FSA, that’s the perfect source to pay for most dental treatments that haven’t been covered by insurance. If your dental treatment is not urgent or can be spread out over time, consider putting it off until the following year, so you can choose to fund an FSA during your benefits enrollment. FYI, if you already contribute to a health savings account, you’ll need to choose a “limited purpose” FSA (just for dental and vision expenses) in lieu of a regular FSA. For tips on using an FSA, see this blog post.

Finance it

Dental problems don’t heal themselves. If you need treatment, but you don’t have resources available to pay in full right now, you may want to consider financing:

Credit card – The advantage of putting the charge on your credit card is that it’s easy and immediate. The disadvantages are significant though: high interest rates, lower credit score (from higher credit card utilization) and reduction in monthly cash flow from credit card payments.

Personal loan – For a borrower with a good credit score, a personal loan may be a good alternative. Rates are generally lower than credit cards. Because a personal loan is considered installment debt (like a car loan or a mortgage), it may actually help your credit score.

You’ll still see a reduction in your monthly cash flow from loan payments though. Make sure you choose a reputable lender with low fees. See this article for more tips on finding a personal loan.

Dental office payment plan – For treatment plans that stretch out over time, your dentist may offer you the option of a payment plan, typically financed by an outside company. However, a dental office payment plan can have a very high rate of interest, more than a credit card. Be cautious and make sure you read all the fine print before you sign.

401(k) loan – A small loan against your retirement plan balance can be processed fairly quickly, without a credit check or any reporting to the credit bureaus. You’ll be repaying yourself via after-tax payroll deductions at a low rate of interest. There are downsides, however, including when you leave your company for any reason, any unpaid loan balances typically become due in full or are considered an early retirement plan distribution – subject to income taxes and a 10 percent penalty for early withdrawals.

Consider a dental school clinic

Many top dental schools offer affordable care from dental students and residents. This can save you fifty percent or more on the cost of your treatment. Search “dental school clinic” online for clinics or search this list of accredited dental schools near you.

What I chose

Luckily, I was able to dip into our cash reserves to pay my dentist for this year’s treatment. That’s what emergency funds are for, after all. I can’t say I enjoyed having to spend the money though.

I also chose to defer the decision about braces until next year, so I have time to weigh the pros and cons. We have some new benefits at work and no longer have access to a limited purpose FSA, so that’s not an option for me. I have some regrets, though, for not funding a limited purpose FSA for 2016. It would have come in handy.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

What I Did During Open Enrollment This Year

November 19, 2015

Well, it’s that time of year again. No, I don’t mean the holidays. I’m talking about annual open enrollment, the limited period when you get to make your benefits selection at work for the upcoming year. Continue reading “What I Did During Open Enrollment This Year”

How to Reduce Out-of-Pocket Health Care Costs

April 02, 2015

Are you paying more for out-of-pocket health care costs? If so, you’re not alone. There’s a growing trend to higher deductibles for health insurance policies, which means we’re increasingly having to pay at least $1-2k out-of-pocket before the insurance kicks in. Here are some ways to reduce those costs: Continue reading “How to Reduce Out-of-Pocket Health Care Costs”

My $280 Mistake

February 05, 2015

I admit it. I goofed. Despite being a financial planner who often helps people with their benefits, I made a mistake with my own. As I was looking at my expenses and taxes for last year, I realized that I could have reduced my taxes by $230. That’s the amount I would have saved if I contributed the $817 I spent on eligible vision and dental expenses last year to my company’s limited-purpose FSA (flexible spending account). Continue reading “My $280 Mistake”

Lessons From a Visit to Urgent Care

June 11, 2014

We all know that the cost of medical care is going up, but my colleague’s recent trip to urgent care really opened my eyes to just how much. The good news is that she is okay, but what she learned about the current state of the healthcare industry should make us sit up straight and take notice. Here is a brief overview of what happened: Continue reading “Lessons From a Visit to Urgent Care”

7 Last Minute Financial Steps to Take Before the End of the Year

December 26, 2013

I hope you’re having a great holiday season! But in-between various parties and celebrations, there are some last minute financial moves to save you money that you might want to make before the end of the year. Here are a few to be aware of: Continue reading “7 Last Minute Financial Steps to Take Before the End of the Year”

Let Open Enrollment Help You Minimize Taxes

September 13, 2013

With tax rates where they are today, and potentially going higher in the future due to the ever-increasing national debt and Congressional spending habits, I get asked a lot of questions about how to minimize taxes. That’s always an interesting conversation because taxation comes in many forms (taxes on income, capital gains, and interest, not to mention all of the consumption taxes we pay) and across many timelines. Are we looking at ways to minimize this year’s tax bite or our lifetime tax bite? Sometimes there are tradeoffs. Continue reading “Let Open Enrollment Help You Minimize Taxes”

Do You Know the Difference Between an HSA and an FSA?

September 03, 2013

Fall has arrived, and that means open enrollment is just right around the corner. For many employees, this provides the window of opportunity to sign up for either an HSA or FSA in order to set aside pre-tax dollars for your out-of-pocket healthcare costs. Not quite sure what the difference is between these 2 types of accounts? Well, you are not alone. In a recent Fidelity survey, two-thirds of those surveyed said they simply do not understand how an HSA works and “a full 73 percent of respondents said an HSA is pretty much the same thing as a health FSA or were unsure, and the ‘use it or lose it’ provision of FSAs was one of the most commonly misunderstood differences between the account types.” Continue reading “Do You Know the Difference Between an HSA and an FSA?”

Chocolate Treats Aren’t Just for Easter!

March 26, 2013

You can never get too much chocolate and the International Foundation of Employee Benefit Plans (IFEBP) can help feed your sweet tooth when you check out their ACA supply kit, available for next week’s National Employee Benefits Day. Not only does the kit include chocolate treats, but also a talking stress ball and worksheets and fact sheets to implement and celebrate the day. Continue reading “Chocolate Treats Aren’t Just for Easter!”

The Worst Savings Account in America

March 07, 2013

Imagine I told you about a special savings account that you could contribute to with money automatically deducted from your paycheck every pay period. Sounds like a great way to save, right? Now imagine that this account earns no interest and has no possibility of any growth or future earnings. Continue reading “The Worst Savings Account in America”

How to Make Inertia Work For You

October 17, 2012

Bedtime in the Ward household can be a trick or a treat, depending on how the kids feel that night. What always kills me is the look I get when I remind them that they have to brush their teeth before they go to sleep. Do I really have to explain to them night after night why brushing their teeth is so important? I guess so because I do. Either it’s because my children suffer from short-term memory loss, or more likely it’s because they suffer from “behavioral inertia.” Continue reading “How to Make Inertia Work For You”

Are You Ready for National Payroll Week?

September 04, 2012

Now that we’re all back to work after celebrating Labor Day, don’t let the fun stop – continue the celebration by recognizing National Payroll Week(NPW) at work. This special week celebrates the economic, cultural, and social achievements of workers and the significance of “an honest day’s work for an honest day’s pay.” Started in 1996 by the American Payroll Association, NPW is a national campaign to help America’s workers understand more about their paychecks, the payroll withholding system and other payroll-driven benefits. Shining a spotlight on employees’ paychecks is a great way to transition to your upcoming open enrollment by getting your workforce already starting to think about their paycheck and current deductions. Continue reading “Are You Ready for National Payroll Week?”

FSA: Use It, Don’t Lose It – 5 Ways to Use Your FSA by Year End

December 12, 2011

As the year comes to a close, many people are decorating their homes for the holidays and stocking up their pantries for company. Others who have Flexible Spending Accounts are scheduling colonoscopies instead! What gives? Since the FSA has a “use it or lose it” clause, the funds must be used for health purposes by the end of the year (however most plans give an extension for 6 – 8 weeks into next year). So to take the full benefit of the funds set aside in the FSA, the funds must be spent soon. Continue reading “FSA: Use It, Don’t Lose It – 5 Ways to Use Your FSA by Year End”

Open Enrollment: A Tale of a Lost Opportunity

September 27, 2011

It’s open enrollment season, and many employees are making the key decisions that will impact both their health coverage and tax situation for 2012. Commonly, employees are seeing higher deductibles and co-pays, but are still not maximizing their ability to, not only cover this exposure, but to also shelter some of their income from taxes by utilizing an FSA or HSA. Continue reading “Open Enrollment: A Tale of a Lost Opportunity”