What about using my Health Care Reimbursement Account (HRCA) Cafeteria plan and Health Savings Account (HSA)?

Likely a part of your employee benefit package is a HRCA/ Cafeteria plan where individuals can set aside pre-tax dollars for qualified medical expenses. The services billed at Raising Sages should qualify for use of your HRCA. Please inquire with your employer or health plan for specifics. For self-employed families, a HSA combines a tax favored savings account with a high deductible health insurance policy

The new limits for health savings accounts (HSA) for 2020 are going up $50 for individual coverage and $100 for family coverage, the IRS announced last week, bringing them to $3,550 and $7,100, respectively. The catch-up contribution limit for those over age 55 will remain at $1,000.

HSAs are tied to high-deductible health plans (HDHPs). The annual out-of-pocket expenses for a HDHP in 2020 are also increasing slightly from this year: They cannot exceed $6,900 for self-only coverage, or $13,800 for family coverage.

The contribution limits are tied to inflation, though the growth of medical costs significantly outpaces inflation each year.

HSAs offer three tax benefits:

  1. Contributions are tax deductible: Like with a 401(k), you contribute pre-tax dollars to a HSA, which reduces your taxable income for the year.
  2. Earnings grow tax-free: You can invest your HSA contributions and the interest accrues tax-free.
  3. You can withdraw money tax-free if it’s used for qualified medical expenses. You can find a list of these expenses on the IRS’s website (your HSA provider should also be able to provide you with a list).

Unlike Flexible Spending Accounts (FSAs), the money you contribute to an HSA does not expire. If you don’t use it during the year you contributed, you can keep rolling it over even if you get a new job. This makes HSAs particularly valuable as a secondary retirement savings vehicle.