You may qualify for—or your employer may offer—a personal funding account (PFA). There are different types of personal funding accounts, but the one thing that they all have in common is that they allow you to use pre-tax funds to pay for specific healthcare costs.
A Flexible Spending Account (FSA) is a funding account that is offered by some employers. You can use the funds in this type of account to pay for qualified medical or dependent care expenses on a tax-free basis. At the beginning of each plan year, you decide how much money to contribute; you can contribute up to the maximum dollar amount allowed by the IRS. You can then access these funds throughout the year.
A Health Savings Account (HSA) is a plan that covers preventive exams and screenings in full, and that allows you to save money tax-free and use it to pay for current and future IRS-approved healthcare expenses, such as your health plan's deductible, copays, and coinsurance.
You can also save and invest your money and let it grow—tax free—over time to use in the future.
A Health Reimbursement Arrangement is an account funded by your employer. You can use the funds in this type of account to help pay for your healthcare on a tax-free basis. Only your employer can contribute to your HRA. You use these funds to pay for any qualified healthcare expense incurred by you or your dependents.
There are different types of HRAs. Each type of HRA covers a different set of eligible healthcare expenses, which may include health plan deductibles, coinsurance, or copayments; vision or dental care; hospital charges; lab fees; prescriptions; and specific over-the-counter items.
Note: This material is not intended to be tax or legal advice. The reader should consult with his or her own tax advisor to determine the tax implications of purchasing the products discussed herein.
Advice, if any, included in this material was not intended or written by LifeWise to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.