Written By: Jen Pieson
Agili customizes individual financial plans for each of our clients; it’s one of the ways we aim to be our clients’ Personal CFO. The beginning of a client relationship usually involves a flurry of activity wherein we coordinate the opening of new accounts and the consolidation of existing accounts to best meet that client’s needs. Once that’s finished, we talk about how to fund these accounts according to each client’s specific goals. Our work does not end with the funding of the accounts, because there’s always a next step of withdrawing that saved money when the time is right.
Some of the accounts that we use have specific benefits that you might not be aware of. In some instances, instead of reaching for your wallet, you can use your existing funds to pay for things that you might otherwise pay for out-of-pocket. Here are some ways to maximize the benefits of your existing accounts, specifically Health Savings Accounts (HSAs) and College Savings Plans (529s).
HSAs are specialized accounts that allow you to save money for certain medical expenses and are completely free from federal taxes. Unlike their earlier cousin, Flexible Savings Accounts (FSAs), HSAs do not refresh at the end of the year (there is no “use it or lose it” clause). With an HSA, your money will collect and roll over year after year, and you can continue to use this money well into retirement. HSAs are portable; if you change jobs or change insurance plans, your HSA can move along with you to your new job or plan.
You may already know some of the ways you can spend HSA money, like paying for medical and dental appointments or buying prescription drugs. But there are so many more ways to use this (triple tax-advantaged) money! You can use your HSA to pay for anything the IRS qualifies as an “eligible medical expense” (see a current list here). Among these less-well-known eligible medical expenses are: hearing aids and hearing aid batteries, contact lenses and contact solution, over-the-counter allergy medicines and nasal sprays, aspirin and ibuprofen, reading glasses, sunscreen, pregnancy tests, vaccines and flu shots, and fluoride treatments. The next time you’re making a purchase including any of these items, consider using your HSA money. On a personal note, I like the idea of saving my HSA money from year-to-year, but with three kids at home that’s not always feasible. Sometimes it’s a relief to use HSA money for these relatively minor purchases instead of going out-of-pocket.
529 plans are now the most common savings tools for college expenses. These plans were designed to help parents set aside money for college, and what makes them attractive is the fact that 529s have significant tax advantages. According to the Internal Revenue Service, while contributions to a 529 plan are not federally deductible, “[e]arnings are not subject to federal tax and [are] generally not subject to state tax when used for the qualified education expenses of the designated beneficiary.” Also, many states allow for deductions of at least a portion of a 529 contribution.
The obvious and most common way to spend 529 money is on tuition, but this money can also pay for university fees, textbooks, supplies and equipment required for enrollment, special needs services and, in some cases, room and board costs.
If you’re interested in learning more about these accounts, I wrote a blog about HSAs here and Jamie Malone was interviewed about 529 Plans here.