- [Presenter] Imagine you're starting a new job and your employer asks you to fill out benefits enrollment That's where you decide which pe you want to opt in for, but it can be a little confusing.
- Okay.
Definitely want the 401k but if I already have health ins I don't need an HSA, right?
Or is that an FSA?
What is a 529 - You're already stressed about starting a new job, so you might just be tempted to skip it all.
- Besides, most of these so-call are coming out of my paycheck.
I'd rather keep the money.
Thank you very much.
- Even if that means missing out on some serious tax breaks?
The whole point of these tax advantaged accounts that you end up saving more than you put in.
- They may not all be the right fit for you, but if you don't even know what you could be leaving money on th (upbeat bright music) Have you ever heard of like an H or FSA or anything like that?
- I have not.
- Have you guys heard of, or do 529 college savings accounts?
Have you heard of these before?
- No, I have not.
- Never heard of it.
Never heard - No, no, I haven't heard about - I have heard of a few, but I'm not familiar with most o - Okay, if you don't know what a these letters mean, either, let's break it down.
An FSA or a Flexible Spending Ac is an account you can put money into tax free, usually in the form of a payroll that comes out of your paycheck before taxes are applied.
Then you can use those pre-tax dollars to pay for medical expenses like prescription drugs, copays, certain over-the-counter medications, even sunscreen and tampons.
And if you have kids who are an or disabled family member, Dependent Care FSAs let you put pre-tax income for qualified caregiving costs.
- What's the catch?
You have to decide how much mone to contribute to your FSA at the start of the year and you have to spend it by the end of the year.
It's mostly use-it or lose-it ca Though, some plans let you roll a limited amount or give you a short grace period.
So if you have regular expenses like diabetic testin supplies or a daycare tuition, an FSA can be a great way to sav but put away too much, and you m find yourself buying a bunch of or a sunscreen you didn't otherw just to use up your balance.
And if you forget to use up your by the end of the year, with a few minor exceptions, you lose that money for good.
- FSA, like a financial?
- It's a Flexible Spending Accou That's where you can spend it on Just kind of use it or lose it.
- Oh, yeah!
No, I don't have that one.
- What about a health savings ac or flexible spending account?
- I don't have that, but I spend a lot of money on healthcare.
- Do you ever think that like ma these sorts of things are really for people who make more money or who are rich?
- Yeah, I mean that's where it s like it's all going to, yeah.
(playful music) (coins clinking) (playful music) - If that deadline seems dauntin an HSA might be more up your all Health savings accounts work sim to FSAs in that you can save pre-tax income for qualified health expenses.
But unlike an FSA, the money you in an HSA rolls over from your y you can even invest the money you set aside.
So it can keep growing until you're ready to use it.
- That means an HSA can secretly to save even more for your retir You paid no tax on the money goi because you can deduct whatever you deposit each year from your taxable inco You also pay no tax on the money as it grows through investment, and no tax when you take it out.
As long as you use it for approv healthcare expenses, though, unlike a retirement account, there's no penalty if you need to take out the mone to pay for medical expenses you - Your employer may even contrib some money to your HSA for you.
Three quarters of employers offering these plans do.
But if your employer isn't so ge or you're a freelancer or gig wo an HSA may still be an option.
As long as you have a high deduc health insurance plan, you quali to open an HSA privately through a bank or brokerage.
And these pre-tax dollars can ma a big difference when you're pay for all of your healthcare costs on your own.
- We do not currently have an HS We did, but they switched the he but now they've just lowered our deductible instead.
- I do not have extra funds to put into it.
- Yeah.
- So I much rather invest in the 401k.
(upbeat bright music) (upbeat bright music) - Where HSAs and FSAs help you s for healthcare costs, a 529 can save it for education.
You still pay your regular taxes on the money you put in, but that investment grows tax fr and can be spent tax free on thi like college or trade school tui for your child, or even a degree or professional certification for your future self.
In 2025, the cost of tuition for four years at a public in-state university reached almost $50,000.
And that number might feel impossible to save.
But with the power of compound i investing $143 a month into your 529 account from birth to age 18 could get you there.
- Non-retirement tax advantaged can cover more immediate expense Depending on where you live, you might offer commuter benefits that allow you to set aside the money you spend on parking or public transit in a pre-tax a to cut down on the cost of getting to and from work.
- Once I had a kid, it was impor that she had enough money to go to a good college.
So that was just a priority to m and so like from when she was two years old, I was just putting money away in and then it compounds over time.
- Either of you guys get benefit through your drops?
- I do, but I actually opted out - Oh, why?
- It was super expensive.
(playful music) (playful music) - Of course, there are plenty of why a tax advantaged account may not make sense for you.
- Maybe you don't have enough pr healthcare expenses to be sure you'll spend all of your FSA, or maybe your b is so tight that current groceri are a more urgent need than future education.
- But don't think of these tax advantaged accounts as something to do with extra mo you have left over after all your other needs are met.
- While payroll deductions to these accounts may make your regular checks look a bit smaller, that money i to cover things you are gonna pay for anyway.
If you're already budgeting for like child care, a bus pass, or prescription medications, tax advantaged accounts can help pay for those out of tax free in - Let's give a real world exampl Say you and your spouse together make $84,000, about the median household income in the US.
You spend $1,000 a year on medic and healthcare items, and $6,000 for part-time daycare.
Put that money in an HSA and a dependent care FSA and you would save $840.
- Max out your contributions to two accounts, and that's almost a $2,000 tax break.
And if your employer offers a ma or contribution to your HSA, or 529 account as a benefit, that's also free money on the table.
- Do you think maybe people thin that these types of accounts are for the wealthy, or not accessible to everybody?
- Yeah, I think it feels that wa Especially 'cause people who are as wealthy are much more focused "How am I gonna get to tomorrow and the next day?"
Rather than, "How am I gonna get to 50 years from now?"
- I would first analyze your inc and analyze your spending.
Premium things that you're not n and if you accumulate all those, let's say it's 150 bucks a month Yeah, take that and just put it into an IRA, or put it into some that yields return over time.
- Sure, all the forms and rules, and three letter acronyms can se like a total headache, but the t they provide are supposed to mak your life a little easier.
So next time you get a stack of employee paperwork, take your time, ask questions.
- Sticking out that short term d of figuring out which of these tax advantaged accounts are righ could make you more financially comfortable in the long run.
- [Both] And that's our 2 Cents.
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