Every year the Internal Revenue Service (IRS) announces new contribution limits for tax-advantaged accounts. Many of these accounts are indexed for inflation so the limits rise year over year. This article is geared at educating you about the new contribution limits for two tax-advantaged accounts in relation to healthcare.
Flex Spending Account (FSA) 2020 Limits:
FSA limits have been announced for 2020. If you have health insurance through your job, you can utilize an FSA for using pre-tax money to cover your out-of-pocket healthcare expenses. FSAs are more of a use it or lose it type of account so it’s best to estimate the amount of healthcare you typically consume before making your elections.
The IRS announced on October 31, 2013, that employers would be allowed to either offer a carryover or a grace period for FSAs effective in 2014. If you have access to an FSA through your employer we advise you check with them on whether or not they offer one of the following options:
- Two and a half months grace period in the new year to use up the previous year’s dollars
- $500 carryover to use in the new year
Here are the health FSA contribution limits for 2020 compared to 2019 and 2018:
Dependent care FSA limits are not indexed for inflation and so they remain at:
Health Savings Account (HSA) 2020 Limits:
If you are on an HSA qualified plan you are able to contribute to an HSA. If you qualify, HSAs have several benefits over FSAs:
- The contribution limits are higher
- You never lose the money
- You can invest HSA funds in mutual funds
Here are the HSA contribution limits for 2020 in comparison to 2019 and 2018:
We realize healthcare costs continue to increase so any opportunity to save on taxes should be considered. Please check with your employer’s human resource department to confirm which of these accounts you may be eligible for.