Health Care Savings Accounts
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If you’re not familiar with a Health Care Savings Account, it’s a great way to pay for your medical costs and reduce your taxable income. You basically have a set amount of pre-tax money deducted from each paycheck and applied towards a HCSA account. The total value of the account is available on January 1 of each year, so you’re “paying back” the account during the year with your paycheck deductions.
Your HCSA account (via a debit card or written forms with receipts) is used to purchase everyday medical supplies, pay for doctor visit co-pays, and other qualifying medical procedures. The only downfall to the HCSA is that any money left over in the account at the end of the year is lost to the IRS, so you have to be sure to estimate your costs fairly accurately.
Having said all that, I’m taking advantage of the HCSA plan for the first time this year. It’s been available for several years, but for some reason I haven’t felt comfortable with it until now. So, after receiving my first check of the year last week, I went to adjust my paycheck deductions in the Quicken program and found a problem.
Quicken wants to set up a new asset account worth the total yearly value of your HCSA account, and apply your paycheck deductions to it as deposits. So, for example, if I chose to put in $100 a month, an account would be created worth $1200 ($100 x 12), and a deposit to the account would happen each month worth $100. This doesn’t work, as the asset account’s value would continue to increase.
So, to fix the problem, I’ve done the following:
- Set up two accounts….one is an asset, one is a liability (or loan).
- The asset account’s initial balance would be set to $1200, and the liabilities’ initial balance would be set at -$1200 (note that it’s negative, as a loan would be).
- The monthly paycheck deductions are applied as deposits to the liability account as if you’re repaying a loan.
- The medical costs (prescriptions, OTC drugs, co-pays, etc) would be applied as deductions to the asset account.
This method allows you to continue to track your medical costs, but the net worth of the HCSA account will result in a value of $0 at the end of the year (assuming you use all of the HCSA funds).
DK
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