FSA’s & HSA’s

In my last blog, I talked about health care open enrollment. A few of the options that many employers offer for benefits are Flexible Spending Accounts (FSA) or Health Savings Accounts (HSA). Are you familiar with FSAs & HSAs and how they are used? If not, read on for more information.


An FSA is an account that you can use to save for health-related expenses/medical costs. You can withhold pre-tax dollars from your paycheck to an FSA account to cover qualified medical expenses. A list of qualified medical expenses can be found here. The primary benefit of an FSA is the tax savings. Money in the account can cover costs for yourself, your spouse/partner (depending on the plan), and qualified dependents (such as kids you claim on your tax return), even if they are not on your health insurance.

Other things to note:

  • You can enroll in an FSA with any health insurance plan. Believe it or not, you can even set up an FSA with no insurance plan. However, you can’t usually contribute to both an FSA & HSA; there are specific rules.
  • The contribution limit for 2021 for a healthcare FSA is $2,750.
  • Your spouse can also have an FSA and contribute up to $2,750.
  • A Dependent Care FSA allows you to contribute money to pay for child/dependent care expenses such as daycare, after school care, and camps. The annual limit is $10,500 for 2021 and the dependent must be under age 13 OR physically/mentally unable to care for themselves.

There is a big con with FSAs, though. If you don’t use the money in the calendar year in which it was contributed, you lose it. Technically, it goes back to your employer. However, there are 2 things that can help, depending on whether your employer’s plan offers them:

  1. You can carryover a certain amount of unused funds to the next plan year. The amount allowable is up to $500. This amount is set by your employer.
  2. You have 2.5 months in the new plan year to spend any leftover FSA money from the prior plan year.

So, if you are enrolled in an FSA this year, and have money left to use up, don’t hesitate! The clock is ticking.

Here are some crazy ideas to help you spend down unused FSA dollars. There is a store dedicated to selling items that are FSA eligible. Their website lets you browse by product category. Here are some examples of eligible products I found on the site that you might not think about:

  • Tampons
  • Condoms
  • Baby Monitors
  • Fancy sunscreen
  • Foot rollers
  • First Aid Kits
  • Himalayan Salt


A Health Savings Account (HSA) can only be used in conjunction with a high-deductible insurance plan. If you have an eligible plan, you can set up an HSA. It’s usually set up through a bank, and you can contribute through payroll deduction, and receive triple tax savings on money you put into the plan. How is that possible, and what do I mean by triple tax savings?

  1. You will not pay taxes on any contributions you make (same as the FSA).
  2. HSA contributions grow tax-free (interest and dividends earned on this money are not subject to taxes).
  3. If you take money out of your HSA for qualified medical expenses, the distributions are tax-free as well.

Some items I also want to point out:

  • Contribution limits for an HSA (as of 2021) are $3,600 for individuals, and $7,300 for families.
  • You can leave money in an HSA and/or use it at any time. We used to have a high-deductible plan, switched to a “regular” deductible plan, and I left my money where it was in the HSA. I can continue to use my HSA funds for qualified medical expenses with the tax-free distribution rules. So, any money you contribute is available long-term.
  • If you take money out of an HSA and don’t use it for qualified medical expenses, there is a 20% penalty on the distribution amount and the entire distribution is considered taxable income.
  • Once you turn 65, you can withdraw money for any purpose, not just medical expenses, without the 20% penalty. However, if you don’t use the money for medical expenses, it’s still considered a taxable distribution.

Unlike an FSA, the money you put into an HSA can rollover from year to year, so you don’t have to worry about spending it before the year is up.

One final thing to note is that you should name a beneficiary for an HSA, someone who would receive the money if you were to pass away. With an FSA, the money can only be used for medical expenses that you incurred, so your beneficiaries wouldn’t be able to receive the extra cash.

Happy spending!


*Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Stephens Consulting, LLC, doing business as Stephens Wealth Management Group (SWMG), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Stephens Consulting. Please remember that if you are a SWMG client, it remains your responsibility to advise us, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to your individual situation, you are encouraged to consult with the professional advisor of your choosing.

SWMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Links are being provided for information purposes only. SWMG is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. SWMG is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Important Disclosure.

Please Note: Stephens Wealth Management Group does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SWMG’s website or newsletter or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Browse by Category