12.09.2024 By Amelia Simons

Maximize Your FSA or HSA: Year-End Tips and 2025 Planning Strategies

As we approach the end of the year, now is the perfect time to review your Flexible Spending Account (FSA) or Health Savings Account (HSA). These accounts offer significant benefits when used effectively, both for immediate healthcare needs and for long-term financial planning.

 

Here’s how you can make the most of your FSA or HSA before the year ends and set yourself up for financial success in 2025.

Year-End FSA & HSA Reminders

FSAs and HSAs are designed to help you manage healthcare expenses while saving money on taxes. But they work a little differently, so knowing the rules for each is key.

1. Don’t Let Your FSA Funds Go to Waste

Unlike HSAs, most FSAs operate on a “use it or lose it” basis, meaning any unused funds may not roll over into the new year. Some employers offer a grace period or allow a small amount to roll over, but it’s important to verify your plan’s terms.

Check your balance and spend wisely on eligible expenses before the deadline.

FSAs can cover costs such as:

  • Doctor visit copays
  • Big-ticket medical expenses
  • Prescriptions
  • Over-the-counter medications
  • Eyeglasses or contact lenses
  • Dental work

2. Use Your HSA Strategically

HSAs, on the other hand, roll over unused funds year after year, making them a powerful tool for both current healthcare needs and long-term savings. If you have an HSA, consider how you can balance spending with saving.

Use HSA funds to cover:

  • Medical bills
  • Health insurance deductibles
  • Vision and dental care
  • Certain wellness products

Planning Ahead: Leveraging FSAs and HSAs in 2025

FSAs and HSAs aren’t just about saving money on healthcare—they can also support your broader financial goals.

1. Reduce Taxable Income

Contributing to an FSA or HSA reduces your taxable income, which can increase your take-home pay or free up cash for other financial priorities. Review your 2025 contribution limits and maximize your savings potential during open enrollment.

2. Budget for Predictable Healthcare Costs

Plan ahead for recurring medical expenses, like regular prescriptions, therapy sessions, or orthodontic care. Allocating funds to an FSA or HSA can keep your budget on track and reduce unexpected financial stress.

3. Build Wealth Through Your HSA

HSAs can also function as a retirement savings vehicle. Funds roll over year to year, and many accounts allow you to invest your balance. The triple tax advantage—tax-free contributions, earnings, and withdrawals for qualified expenses—makes HSAs a powerful tool for wealth building.

Action Steps to Wrap Up 2024

  • Check your account balance: Ensure you’re on track to use your FSA funds before they expire.
  • Review eligible expenses: Stock up on healthcare essentials or schedule any remaining appointments.
  • Plan for 2025: Adjust your contributions to reflect your expected healthcare needs and savings goals.

By being proactive, you can avoid losing money, reduce your taxable income, and use these accounts to their full potential. Whether you’re planning for immediate health expenses or setting yourself up for long-term financial security, FSAs and HSAs are tools that can help you achieve your goals.

Do you have a clear view of your finances for 2025?

As you prepare for 2025, take a moment to reflect on the past year and how your needs may have changed.

Life events such as starting a new job, experiencing a loss of employment, adding a family member, or navigating changes in your health can significantly impact your financial priorities. Use these insights to review and adjust your spending and savings plan.

Ask yourself:

  • Are your healthcare contributions aligned with your current needs?
  • Do you need to adjust your budget to accommodate new expenses or savings goals?
  • Are there new opportunities to save more effectively in the year ahead?

Your FSA or HSA is just one piece of the puzzle, but it can be a powerful tool for keeping your finances on track. By reflecting on your unique situation and planning intentionally, you can create a financial plan that supports your health and wealth for years to come.

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The IRS has announced its dollar limitations affecting medical Flexible Spending Accounts (FSAs), and Healthcare Savings Accounts (HSAs) for 2025.

Make the most of your benefits today, and start the new year with confidence!

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