How Recent Changes to FSAs and HSAs Could Affect Your Retirement Plans

Plan your financial retirement in West Palm Beach with a financial advisor

Healthcare is one of the biggest concerns for most people reaching retirement age. A health scare or unforeseen visit to the hospital can result in steep bills and a significant dent in your bank account. For many Americans, Flexible Spending Accounts and Health Savings Accounts have provided practical solutions for their healthcare concerns. Recent legislative changes have affected the way these accounts work. Here’s what you need to know about how these changes may influence your financial retirement in West Palm Beach. 

a senior couple planning financial retirement in West Palm Beach with an advisor

Understanding FSAs and HSAs 

What is an HSA? 

HSA stands for Health Savings Account. This type of account functions like a savings fund, except dedicated for medical expenses. With an HSA, you put money away pre-tax to pay for medical costs designed by the account. These accounts are designed to lower overall health care costs by paying for deductibles and copayments with untaxed dollars.  

What is an FSA?  

FSA stands for Flexible Spending Account. This account functions similarly to an HSA, allowing you to put pre-tax earnings directly into a fund that will be used to pay for qualified medical expenses. Despite the name, FSAs are not particularly flexible with the funds, and they expire at the end of the year.  

What is the Difference Between an FSA and an HSA?  

Although there are many similarities between these two types of health care accounts, there are many more differences. For starters, FSAs are employer-provider, which means they offer much less flexibility when it comes to the funds. On the other hand, FSAs also tend to have lower annual contribution limits, making them less expensive to maintain, freeing up more money for your financial retirement in West Palm Beach.  

Advantages and Disadvantages of FSAs 


  •  Easy to set up through your employer 
  • Lower contribution limits  
  • Grace period that allows you to spend unused funds  


  •  Forfeit unused funds after the grace period 
  • Less flexibility as an employer owns it
  • More difficult to change your plan  

 Advantages and Disadvantages of HSAs  


  •  Carries over despite employer changes  
  • Unused funds rollover 
  • Savings can be taken out after the age of 65 


  •  Requires a high-deductible health plan 
  • Not eligible for Medicare 
  • Dependents cannot claim this account 

a senior couple smiling contentedly after planning their financial retirement in West Palm Beach

The Value of an HSA Plan  

A recent survey found that 40% of respondents with access to a health savings account (HSA) do not fully understand how they work. Basically, HSAs are paired with high-deductible health plans to help people save money for their plan’s high deductible, copayments, and other qualified expenses. 

However, the real value of an HSA lies in its tax-free advantages. Contributions are made tax-free (reducing your current taxable income) and can be invested for tax-free growth in various mutual funds, stocks, and exchange-traded funds (ETFs). Additionally, HSA withdrawals are tax-free as long as they are used to pay for eligible products and services. 

What the Legislative Changes to Individual Contributions Mean for You 

In 2021, the contribution limit for a health savings account is $3,600 for individuals and $7,200 for families; anyone age 55 or older can make an additional $1,000 annual contribution.[1] 

Throughout the past year, Congress expanded the eligible uses of these funds, further increasing their value and allowing you to purchase a broader range of personal and health-related products using tax-free income.  

If you have access to one of these accounts through work or purchase health insurance on the individual market, they are a good idea to include in a financial portfolio. If you’d like assistance determining how to invest your HSA savings to complement your financial retirement in West Palm Beach, don’t hesitate to call us for advice. 

Impact of the CARES Act 

The CARES Act, passed in spring 2020, expanded the types of products that can be paid for with HSA or employer-sponsored Flexible Spending Account (FSA) savings. Under the new regulations, these funds can be used to pay for over-the-counter medications, like ibuprofen and Claritin. Other products that are now eligible for purchase with HSA and FSA funds include:[2] 

  • Facial cleansers, face wipes 
  • Prescription acne medications and over-the-counter acne treatments  
  • Sunscreen and medicated body lotions designed to alleviate certain skin conditions 
  • Lip balms for sun protection and chapped lips 
  • Hot and cold therapy packs, cooling headache pads 
  • Heartburn medication
  • Allergy relief
  • Toothache relief, such as Orajel
  • Humidifiers, air purifiers, and filters — with a letter of medical necessity (LMN) from a physician
  • Dietitian fees, with an LMN
  • Some mental health treatments and services
  • Prescription hormone replacement therapy
  • Birth control pills
  • Pregnancy tests
  • Fertility tests
  • Fertility treatments such as in vitro fertilization, intrauterine insemination, fertility medication, the temporary storage of eggs or sperm
  • Breast pumps, breastfeeding classes, absorbent breast pads, breast milk storage bags
  • Feminine care items, such as pads, tampons, cups, sponges 

More Flexibility for Your Flexible Spending Account 

In February, the IRS published guidelines giving employers more flexibility to extend how long employees have to use their FSA funds. Normally these are “use it or lose it” by the end of the year, with a short grace period.  

However, due to job interruptions last year, new guidelines allow employers to extend those funding rules to carry over or extend the grace period for unused health and/or dependent care FSA funds for plan years 2020 and 2021 to the immediately following plan year. Note that the new rules permit employers to make these changes, but it’s up to the employer to decide what to do.[3] 

What Does This Mean?  

FSA owners with more time and opportunities to spend their funds have many new approved items for which they can use that money – even for gift ideas (these expenses are approved for an HSA as well):[4] 

  • Ancestry kits (a fun holiday gift for family members) 
  • Baby monitors and potty-training undies (baby shower gift)
  • Birth classes and medically certified doulas
  • Prescription sunglasses (for a winter ski trip)
  • Nicotine gum, patches, lozenges, inhalers, nasal sprays (New Year’s resolution to stop smoking)
  • Moisturizers with SPF protection (such as expensive anti-aging facial lotions) 

The Personal Health Investment Today (PHIT) Act is a bipartisan bill introduced in March. If passed, it would permit the use of pre-tax FSA and HSA funds to pay for healthy living products and activities, such as gym memberships, fitness equipment, and sports-league fees.[5] 

a woman is smiling after successfully planning her financial retirement in West Palm Beach

Want Professional Guidance for Your Financial Retirement in West Palm Beach?  

It can prove impossible for the average person to track all the changes that may affect your finances. We can help! Legacy Financial Partners has the expertise and insight to guide you to your desired retirement goals. Give us a call today to schedule a meeting!  

Content prepared by Kara Stefan Communications. Edited and optimized by Digital Resource. 

1 Brian O’Connell. Omaha World-Herald. March 4, 2021. “Saving For Medical Expenses With An HSA.” Accessed March 23, 2021. 

2 Regan Olsson. BannerHealth. July 19, 2020. “7 Things Covered by Your FSA That Might Surprise You.” Accessed March 23, 2021. 

3 JD Supra. Feb. 22, 2021. “IRS Notice 2021-15 Provides Clarity Regarding FSA Relief Available Under Consolidated Appropriations Act Benefits Law Update.” Accessed March 23, 2021. 

4 Megan Leonhardt. CNBC. Dec. 15, 2020. “15 surprising things you can buy with your leftover FSA dollars.” Accessed March 23, 2021. 

5 Jody Heemstra. DRG News. March 19, 2021. “Thune, Murphy Reintroduce Bill to Encourage Healthy Living.” Accessed March 23, 2021. 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 


legacy financial partners webinar banner
legacy financial partners web clip
lady typing happily in the laptop
Think you’re ready to take the next step?

If you’d like to hear more information about any of our products or services, schedule a meeting today or register to attend a seminar.