News & Events Planning for health during a pandemic
Planning for health during a pandemic
The COVID-19 pandemic has created widespread hardships for many people and families. The increasing availability of vaccines and advances in treatment, and more knowledge on how to prevent the spread of COVID allows for more optimism for the coming year. Now is the right time to plan for 2021 in terms of building health security for you and your family.
For those who have health plan coverage which includes access to a health savings account (HSA), proper planning can save you money on taxes every paycheck and allow your family to build an emergency savings account for medical events. Here at PayFlex, we try to make planning for your wellbeing as easy as possible. Let’s review a few key questions that can help you get the most from your HSA.
By finding the answers to these questions, you and your family can establish personal health security and peace of mind, which is even more important during the pandemic.
What is the right contribution for you?
Start by understanding how much you spend on out of pocket health care expenses. You can call your health plan provider and ask for this information. You’ll want to gather a couple of years of expenses, so you can best understand your spending.
You can use your spending levels from 2019 and 2020 to help you estimate what you might need in 2021. For example, if you spent $1,500 in 2019 out of pocket and $2,000 in 2020 out of pocket, calculate the average of the two years:
Average spend = ($1,500 + $2,000)/2 = $1,750
Then take your average, $1,750 in the example, and divide by the number of paychecks that you receive in a year.
Contribution per paycheck = $1,750/number of paychecks
This is going to give you the minimum amount that you should contribute to your HSA. This will help make sure you can cover all of your out of pocket expenses. Remember, HSA funds don’t expire so the more you put in your HSA, the more you may have when you need it.
Did you spend more on medical in 2020 than you planned? If so, there’s still time to contribute toward your 2020 expenses and save money on taxes. Save your receipts and receive the tax savings when you file your taxes. You can make 2020 contributions until May 17, 2021.
Are there wellness incentives you can earn?
Many companies offer wellness rewards and incentives for participating in different healthy behaviors. Did you know that you may be able to put those incentives directly into your HSA? Next time you earn wellness rewards, check with your employer on whether you can put those incentive dollars into an HSA.
What other tax-advantaged saving options do you use?
It is important to review all your financial accounts together. By looking at the 401(k) and HSA together, you can optimize your tax savings now and in the future. For example, let’s say that you have an annual household income of $100,000. And your employer provides a 401(k) match of 5%. You decide to split your contributions as follows:
401(k) contribution: $8,000 (8%)
HSA contribution: $3,000 (3%)
You could increase your tax savings by $153 and gain $500 in future health care spending power*, if you change your contributions to:
401(k) contribution: $6,000 (6%)
HSA contribution: $5,000 (5%)
Plus, you’ll still put enough in your 401(k) to get the full employer match.
COVID-19 and the global pandemic have brought a spotlight to the importance of having reliable access to health care and the barriers that can prevent you from having the access you need. The HSA, when available, can be a financial safety-net in difficult times.
*Assumes a 25% total tax rate on 401(k) withdrawal, which equals a net $1,500 available to spend vs. $2,000 from a health savings account. The $153 savings is due to FICA tax avoidance at 7.65% on a $2,000 annual contribution).