Welcome to the fiscal firehouse, a podcast dedicated to promoting financial literacy to firefighters. I'm your cohost, John Beatty, executive board member of local 1309, a lieutenant, and also a certified financial planner with me, I have the other cohost of the fiscal firehouse, Louie Borrella, executive board member of local 1309 ambulance driver, and want to be financial expert together. John and I hope to bring clarity to the world of personal finance, specifically relating to firefighters.
Firefighting is a difficult job. Making sound financial decisions shouldn't be.
In today's episode of the Fiscal Firehouse, John and Louie will tackle two exciting topics, flexible spending accounts and health savings accounts, FSAs and HSAs. John and Louie will also discuss how best to utilize these two important employer benefits. Without further interruption, let's go to local 1309 studios and the recording of the Fiscal Firehouse. Welcome back to another episode of the Fiscal Firehouse. I'm your co host, John Beatty.
With me, I have the man, the myth, the legend, LB, Louie Barella. How's it going today, Louie?
ambulance driver, Louie Barella.
Yeah, that's right, the ambulance driver, Louie Barella. Hey, we have got a A big pod for you today. We got a lot of topics to get to. It is the Superbowl, for our HR departments right now, open enrollment season We're going to talk about a lot of the things that involve open enrollment,
And one disclaimer we want to give during this time is that, this is not a rehashing of the HR video. This is not a substitute for watching the. vector solutions video. You still got to watch that We're just trying to give you some important info regarding the financial aspects of open enrollment that you might want to consider.
Yeah. And what you guys might notice from the, from the intro is. We're changing up a little bit of the tone and the flavor of the podcast. so there's kind of two different reasons that that happens. So first we got direct feedback from the members was one. but then also we've got feedback from other members outside of a local 1309 that really. information for their members as well. So you guys know that we have a joint recruit academy.
So not only amongst West Metro employees, but also our Vata and castle rock, and sometimes other neighboring agencies come participate. So when Louie and I got this podcast spun up, we started spitballing around the kitchen table and they're like, This is really cool. Is this something that would be available for us and our members?
so we kind of had a conversation amongst the executive board, originally when he had our first episode, we said, Hey, this is going to be curated specifically for local 1309 members, but really in the spirit of stewardship and unionism and really trying to get this information out to quite frankly, all professional firefighters, If there's people that want to hear this messaging outside of the membership, then I think that's something that we want to entertain.
So, you know, this is still being funded through local 1309 members. so there will be some parts of the podcast that are curated still specifically for our members, but really, I'm going to go on record here and say that 90 to 95 percent of the conversations that we're going to have are going to be really applicable to any professional firefighter, really any kind of personal finance stuff. So thoughts on that,
No, I totally agree. I think that there's a hunger for this kind of information, throughout the Colorado professional firefighters association. and you know, the professional fighters within Colorado at the very least. So, yeah, we're, we think that this could be very beneficial to those people. So we're going to kind of. Let them know about it, see if they want to subscribe and listen.
And on that related note, you know, one thing, John, I don't know if you've been asked this question, but I've had people come up to me and say, Hey, I like the podcast. I didn't get an alert once episode one dropped. I got episode zero, listen to that. you know, where's, where's my email. So just so you guys know a little housekeeping, we're not going to be. sending out emails or text reminders to let you know when it drops, that would just be annoying.
And, for all the people that don't want to listen to that, we don't want to spam them with that. So if you want to subscribe, go to your podcast player choice, whether that's Spotify or, Apple music. Apple podcast, I guess, and subscribe to the podcast. So don't want to sound like a, an overplayed YouTubers and was like, Hey, subscribe and smash that like button.
But, if you subscribe or, I think some people calling it add to collections or whatever, depending on the podcast player, that will, Allow every podcast that we come out with to be automatically downloaded, add it to your playlist. And then that way you'll be notified when we drop a new episode.
Yeah, and if you, don't have the capabilities of doing that, find a Gen Zer, find someone that was born, after 1990 and they will get you dialed in on how to subscribe to a podcast.
one of those new guys to, to subscribe for you.
That's right, that's right. So, on the dock today, we got a couple of different topics that we're going to talk about. we're going to start by talking about the FSAs, the flexible spending accounts. but specifically when we're talking about this, and this is more related to local 1309 members. This has nothing to do with the retirement health savings plan. All right. Sometimes there's some, confusion about. different levels of retirement health savings.
so this is completely standalone from what the retirement health savings plan is. So once again, if you're a member outside of local 1309 in your department has set up some type of retirement health savings plan, this is, It's not apply at all to the flexible spending account. So sometimes there's some misinformation about that.
in a future episode, we are going to talk more about, what it's like to have healthcare once you retire and how to save for that and using retirement health savings and all these other things. but really these are two standalone topics and they really shouldn't be intertwined or intermixed.
Yep, we have enough information here between FSAs and we'll get to HSAs later as well. But we'll talk about retirement health savings accounts, which is a great plan. We'll talk about that at a later episode when we're talking about retirement and retirement health care.
Perfect. Yeah, that's a huge, it's a huge topic and something that's always front in mind of people thinking about retiring. So let's start out with just what exactly is a flexible spending account. So really it's something that is provided through your employer. So if you, have a spouse or someone else that is listening, that is either self employed or like a sole proprietor, this is something that they don't have access to. It has to specifically come from your employer.
You can't go and seek this out on your own. And honestly, this is something that's. become very commonplace, not only just in the fire department, but in corporate American, everything else is just an additional benefit that employers really recognize that their employees need and want, and it's just become really commonplace.
So I don't think you're, I think if you're listening outside of local 13 oh nine, and I think this is going to be something that I'm, betting your department probably offers you. So what exactly is it? there's really two different avenues in which you can use a flexible spending account. One is for medical care, right? qualified medical expenses. And the other thing is for dependent care. And those are two separate categories that would have different contribution limits.
And the really key thing is, and why it's really nice from a financial planning perspective is You get to save on tax. It's always a pre tax contribution. So you're not going to pay any federal income tax. You're not gonna pay any state tax on it. And if you work for an employer, if you work for a fire department that actually still participates in social security, those FICA taxes, which are pretty, expensive, you're going to save on that money. So it's a really nice tax savings.
So John, would you say that the main reason to contribute to an FSA is for the tax savings?
100%. If it's one of those things that, you know, you're going to have qualified medical expenses within the calendar year. And once again, we'll talk about what that means here in a second. it's a no brainer. It's going to be a 20 to 30 percent savings just based on what tax bracket, maybe even a little bit more than that. So, I feel like there has to be a catch. What's the catch though? There's always catches, right?
So the biggest thing, these should not be thought of a savings account, like a health savings account, which we'll talk about here in a little bit, in a minute. so they're under the IRS. They're basically what's called a use it or lose it plan. So what that means is the money that you have saved up has to be incurred within that calendar year. Basically from January 1st to December 31st. You have to use that money.
You can't roll it over, you know infinitely so there's so that's why it's one of those things that you just have to be cautious You don't want to put all this money away And then at the end of the year buying two thousand dollars worth of band aids and tums and pepsi And I don't know what you guys eat at the firehouse But I mean you could probably go a long ways with buying some of those necessities
Metamucil and the Tums themselves, man, that could, that could take up an FSA right there.
take up a whole FSA, especially if you're cooking. but yeah, so that's really the big caveat with that is you want to try to pre plan as much, knowing what your healthcare needs are and what those healthcare costs are going to be, and try to plan that to the best of your ability. And there's always going to be accidents that happen and it's always maybe nice to have a little bit of money in reserve for that.
to pay for those, but, you don't want to go hog wild and go crazy and have all this money saved up and then at the end of the year, you didn't really have any medical expenses, which is great from a health perspective. You didn't get hurt. You didn't get injured. but you also don't want to have this overlooming amount of money that then you're trying at the end of the year, trying to, you know, use, use, costs and expenses that really are unnecessary.
So I think it'd be probably fair to say that if you have children, that live with you, we know that those kids love to go to the doctor, man, they get hurt, they get injured. they might have to go to an urgent care or they might have to go to a doctor's office visit for colds or the flu or whatever. And so maybe for you, That would make sense to max out an FSA, which we'll talk about those limits later on in the episode.
But if you have adult children or you don't have children or you're not married and you're a relatively healthy individual maybe we don't want to put the max allowable Amount into an FSA because like you said we might get to the end of the year And then be doing the FSA scramble where you have to start Looking at all the eligible items that you might be able to buy so that you don't lose those funds I would say that's probably the the biggest catch.
Yes, if it sounds too good to be true, it is. But this is just one of those kind of buyer bewares. Just be cautious about that because you don't want to run into that. So one of the things I want to backpedal just a little bit on is there's basically two different types of health care FSAs.
All right, there's what's called a it's typically called a general care or a general purpose health care fsa So that will cover things for medical vision and dental and then some employers will also offer what is called a limited purpose Health care fsa and that will cover only dental and And vision and we'll talk about the discrepancies between two of those when we talk about health savings account because it's really important It seems like a very small nuanced detail But when it comes to
health savings account, it's a very important detail to be able to know what the difference are and what makes things eligible and not eligible. So we'll talk about that
and to and to keep it simple What do we offer here at west
So west metro you pretty much have the general purpose is what people are going to contribute to so that is going to cover It's a good little segue. So what That actually constitutes qualified medical expenses. in this case, it is things such as medications, vision, dental services, medical treatments and procedures. Basically those that are non con, cosmetic. it'll cover co pays and deductibles, but it does not cover premiums. So this is also sometimes a misconception. It's like, oh, hey, cool.
I've got this FSA. Can I use that to cover my healthcare premiums? And it's not, that is one of those things that is not covered, when you're talking about a healthcare FSA. So, health insurance premiums are not covered. there are certain things like, marriage counseling. I know a lot of our folks use, personal training or exercise equipment like that stuff is not an eligible expense. And then once again, any type of typically cosmetic surgery.
full disclosure, there's always I don't want to say loopholes, but there's always special provisions. So you can't just blankedly say just cosmetic surgery generally, because they're always, almost always our exceptions to the
Sure. Sure. But my Botox, I mean, I'm almost 40 now, so, you know, my Botox is probably not going to be
Botox, teeth whitening. You got some pearly whites there, LB. those things ain't going to be covered. Yep. So just be buyer beware on that. so we kind of talked about, how you can use this. once again, it's a use it or lose it philosophy, right? So you have to use it within the calendar year, but once again. There's always exception to that rule and this one is going to be very specific to your employer's plan All right, so I can't I can't emphasize that enough.
So this is important to your employer's plan So specifically here at west metro we have what is it called a grace period So you not only have the full calendar year, so January 1st to December 31st, but our employer actually opens up a grace period up to March 15th. That basically allows you to incur any costs. So going to the doctor, the dentist, all that stuff. stuff. So you almost have a little bit over 14 and a half months to actually use that money up.
And then you have until March 31st to basically get your paperwork in for reimbursement for any of those costs. So once again, though, that is specific to West Metro. check with your department, with your H. R. Department, to see exactly how your plan is set up because there are other plans that allow you basically to roll over a certain amount of money every year. but West Metro members don't have that. We do the grace period instead.
So once again, be very, specific with whatever department you're operating under.
use your funds, use your FSA funds.
Use your FSA funds. We can't, it's once again, if you go beyond that March 15th or for some of the other, members that are listening to this, that have a December 31st deadline, it, it goes away. Like you don't get that money back. You can't have an IOU and say, Oh, just give me some credit and we'll roll it to the next one. It does not apply that way.
And on a related note, here's one of the really cool features of NFSA, benefit if you will, and that is. Once you decide the amount that you're going to contribute to your healthcare FSA, that entire amount that you're going to contribute for the whole year is available on day one. So, John, an example of that would be, let's say I decide to put 1, 000 over the course of the year into an FSA.
we get paid twice monthly and you would have access to that entire thousand dollars up front to be able to use for healthcare. So that's kind of cool. It'll still take out just 41 and 67 cents from your. Paycheck, every paycheck, but you would be able to use that thousand dollars on January
Right up front, which is great. part of this is just, you know, giving a little bit more education if at all possible, we never want to try to put stuff on credit, especially credit that we don't pay off every month.
preach preach
Well, yeah, we get back to what episode two was all about and achieving financial or episode one, sorry. And talking about, financial independence and really the pillars to that and. getting out and staying out of debt is definitely one of the main pillars. So if we can use the benefits that our employers provide for us and use them wisely, this will definitely put us in a better, financial position to achieve those goals long term.
Yep. Yep.
So how much can you actually put into your healthcare FSA? So this is one that is, the IRS has actually given us a little bit of grace with this. They have, made this somewhat Inflation protected. so that means typically every year they raise the contributions Limits up a little bit to keep up with the consumer price index the cpi So this was from last year. This was from a 2024.
So obviously we're talking about 2025 those numbers will change typically the irs comes out with that notification in november So just as a point of reference, we're recording this the first week in october 2024 So within the next You know month or so they'll actually have more guidance as far as what the actual contribution limit is but from last year it was 3200 is what you could put away So this is something that's a little bit specific and that is per employee.
All right, so you there's not a difference between a family plan and a individual plan plan. When you're talking about a healthcare, FSA. It is looking at the employee individualistically, whether you have a family or not. So case In point is, if you work for a fire department, you could put away 3, 200. dollars and then if your spouse or partner worked at a different job or a corporation a different agency even
or even at
Or even at west metro, they could then elect 3200 as long as their employer had that option available So sometimes there's some point of confusion about like, okay. I have a family Can I add more money to this or because i'm single do I get a reduction in this and no it's per employee So definitely a key point with that
All
So one of these things that we once again talked about is how much money should we be putting away, you know, and once again that is going to be a very individualistic Decision. And it's really just going to be based on where you're at. If you, I mean, this, to me, this is the knowns.
So if you have chronic health problems or just chronic medications that you're on, you go to the chiropractor a certain amount of times a and you can kind of start to understand what that looks like every year and figure out what those out of pocket costs are. Like that's really where I would recommend someone starting at. starting at what you know, your known costs are going to be, and then working backwards.
And if you end up having a couple hundred dollars at the end of the year leftover, I think that's probably okay. And then you can get some of those other necessities, whether it's a, you know, suntan lotion or, or Tums, or
lotion is is
I believe sunscreen now. You guys can fact check me on this, but I feel like on our last massive FSA order in which we had too much money left over Katie and I, I believe we've got like 17 tubs of sunscreen. So I will make a plug. And once again, Louie and I don't have any sponsors for this podcast. I know where you're going, but there is a store called the FSA store. com and they, you can basically search. Their products based on eligibility and it'll tell you exactly what is eligible
pretty cool.
irs regulation So I think that's where we actually went to it So that's the only reason like I feel pretty confident that suntan
like,
Is one of those qualified
pretty confident that, suntan lotion is one
course. Oh my gosh.
most qualified expenses. Oh, of
it got the nice zinc oxide on there? So
I think. Oh, all pasty white. Yeah. I look great in that. But anyway, nice to know that that's covered. Maybe that's an option to get a couple tubs of that.
Yep, a hundred percent. So that's kind of healthcare FSAs. generally speaking, general, guidance, just how you should think about going about that. I definitely think it's probably still underutilized just talking to our, members about it and, and what it's used for and when it's appropriate to use. so the one thing once again, So there's two different types of healthcare FSAs, general purpose, healthcare FSAs, and limited purpose.
General care purpose really includes the medical portion of the plan. And that's what most of our members will probably use. So just know what the difference is in that. so now we're going to go over to the next layer, the next bucket, if you will, with the flexible spending accounts and that's the dependent care, flexible
This one speaks to my heart. I like this
This one does speak to your heart and it's also going to get you a little bit amped up when we talk about The distribution of this but nonetheless you want to chat a little bit about what the dependent care flexible spending accounts are louis
Sure. Yeah. Dependent care FSA allows you to, basically. On a pre tax basis contribute to this account that can be used for dependent care. So if you have children and they're in preschool or they're in daycare, you can basically get a tax break on all and not all the money, but on a certain amount of money for those expenses, through your dependent care. FSA.
There's a few differences in how the account works versus a health care FSA, but at the end of the day, it allows you to get a tax break on dependent care.
Correct. And just for some, simplicity and putting a few numbers with it. So basically what the IRS qualifies as a qualifying child, it's someone that's under the age of 13. So if you've got a kid that's 12 and under, basically it will, Any type of care that you provide from them when you think about preschools, daycares, certain summer camps are eligible. All of those things after school care, before school care, all those things would be, qualifying expenses.
It doesn't happen a lot, but also just keeping a broader perspective, you may have a spouse that also would fall under this category if they had some form of a disability and they couldn't care for themselves. I think that's that's often overlooked.
And really I've run into this more talking with some of our older members that are now, in the later stages of taking care of their parents this is also something that is a potential that you could use, to help fund some of those costs if you had a dependent parent. parent.
Now, there's a lot of stipulations and we're not getting into the weeds on that, but just be mindful if you are in that situation where you are caring for your parent, they're living at home, there's other things that you're providing for them, and per their IRS guidelines, they make a qualifying dependent. This is also something that you could potentially, use for money for that, and I think that's often overlooked and under discussed. So just be mindful of that.
we kind of already hit a little bit as far as what are eligible expenses. once again, we're not going to go through the litany of all the things, but we already kind of hit on some of them before and after school care, nanny services, day camps, anything that you consider childcare, preschool, all those other things. What is not eligible? is, tuition expenses for education, some forms of summer school and overnight camps.
So once again, if you're trying to use this for any of those ones, just buyer beware. you do not want to go down that road. They will deny that.
school tuition doesn't count.
Private school tuition does not count. you want to talk a little bit, about the funding mechanism and how the dependent care FSAs are a little bit different than the, healthcare FSAs, as far as when you are eligible for reimbursement.
Yeah. So this is one of the, you can call it a catch if you want, or I would just call it a, just a difference. we talked about with healthcare FSAs, the full amount that you are going to contribute throughout the year is available on day one, while with the dependent care FSA doesn't work that way, it's not prefunded. And so basically you can only get reimbursed for the amount that you have in that account. as you contribute throughout the year.
So if you are contributing, let's just say 50 a paycheck, that's, you know, a hundred dollars a month in that first month, you can only get a hundred dollars worth of reimbursements. So it's not all prefunded. You got to kind of plan it out a little bit. but that's just one of the limitations of the dependent care FSA.
it definitely is a limitation and it's one of those I'll be honest for just ease of use What I do personally is I just wait till the end of the year I just have all that it's 206 a month I think is or a paycheck is what what I have taken out and then at the very end at december 31st Then I take it out take all those receipts, and then I submit it as a whole rather than just go kind of week to week or, or month to month. For me, it's just a way easier to track it that way.
and that way I'm not trying to submit a bunch of receipts to get reimbursed for that. So
that makes sense.
a limiting factor with
And just on a related note, you talked about submitting receipts. That is something that you have to do. The one important part of this is that to get reimbursed for dependent care FSA eligible expense, the person or the preschool or whatever it is that you are seeking reimbursement from has to be a tax paying, official, dependent care provider. So they had to provide you with a receipt. They had to be paying taxes on that. the, you know, 16 year old babysitter that you hire.
So your wife and you can go out to have some wine and cheese at night. it would not be eligible. Unless that person is, you know, legitimately over the table, so to speak, paying taxes on it and providing you with a receipt and record of transaction.
Yes, and that's a excellent segue, for our next topic. And this is something that is also, I don't know, well known, amongst not only our members, but I think as a, as a whole is, you know, really the purpose behind this was to allow people to. To work and then be reimbursed for work related expenses resulting in childcare. So what I mean by that is you actually have to show earned income from not only you, but if you're married, your spouse as well.
And this is very common here is we have a lot of, stay at homes, moms and dads, right. And they, I mean, don't get me wrong, staying at home with your kid, that is a full time job. And I wish the IRS would recognize like. You're not kidding. That is a full time job and my hat's off to anyone that's a tremendous responsibility and really a tremendous gift to be able to give your kids. But at least in the IRS's eyes, that does not count as earned income.
So if you do have, if you're married and you do have a spouse, a significant other that stays at home and they do not have any earned income, You will not qualify for this at all.
Not a zero dollar is not eligible to be put towards dependent care You can't pay your family members to watch your kids Anyone that you're claiming on your tax return you can't pay to take care of your kids Older siblings, so there's a lot of there's a lot of special circumstances with this but I think once again just knowing kind of the the dynamic at least around west metro and having a lot of stay at home moms and dads, just be very cautious about that.
so one of the things and the IRS spells it out, and I've seen this happen a few times is you will be married and you have a full time job. And then your spouse or your partner they're going to school. They're going to school full time. Maybe they're going to nursing school. Maybe they're going back to get their master's in teaching, but basically they're taking the year off to go back to school there actually is within the IRS. There is provisions.
That basically count full time school to count towards earned income all of the stuff that we're talking about and if you ever look in research anything, You know, someone is valid or a website or a blogger is valid if they are citing specifically tax codes or tax publications So if you have any questions about Any of this stuff I would refer you back to. It's really nerdy. It's the IRS publication 503.
It talks specifically about childcare expenses, childcare, tax credits, all the things that makes it a qualified child, all these other things.
Like, and honestly, The IRS actually did in my opinion something good like you don't have to have an accounting degree or have a history in taxes to understand this like they really do break it down to the pretty layman's level and they give you a lot of case studies and like well if it's this what would this look like and it's a really good starting point if you got any more questions or comments concerns about any of this stuff because once again we're talking a really high level about this
but that's where I'd refer you back to is publication 503 So as far as how much can we actually start putting away here, Louie, we're talking, we know how much childcare costs. You got three. I got two.
my gosh. This is the bad news, I'd say, as it relates to the dependent care FSA. It's a really cool thing. Like we mentioned, the benefit of a dependent care FSA is that it allows you to, basically reduce your tax bill by the amount that you put into that. FSA, which, you know, for those of us that have 15, 000 or 20, 000 worth of dependent care expenses, we'd be like, Oh, that sounds great.
But unfortunately, the numbers that are set by the IRS for reimbursement, are probably not going to cover what your dependent care costs are throughout the year. And this is something that is important to both John and myself. We, kind of have a little pet project going on in the background, looking at different dependent care options and kind of how to, if there's any way we can help our members with it. Anyway, back to the dependent care FSA. Unfortunately, the IRS has set those numbers to.
2, 500 for an individual or 5, 000 for a family. So that would be, you and your wife both work or you and your husband both work, you would be eligible for to contribute 5, 000 to a dependent care FSA. If only you're working, if you're divorced, which there's some other little wrinkles in that, but if it's an individual FSA, you would only be able to contribute
2, 500 for that. The majority share of custody and always refer back to your divorce decree because that will typically outline who gets who gets what? But typically if you are, the if you have your child More than more than 50 percent right and you are actually the custodian as well As per the IRS guidelines, you can actually put away a whole 5, 000. You can. So basically it's a 5, 000 limit.
if you were in that circumstance or if you're a single parent for whatever reason, and there's no one else in the picture, you would actually be qualified to have 5, 000 in that, in that program.
And if you split 50 50. Then you would not be
Correct. And typically, and there's always, once again, I would always refer back to your divorce degree because it should spell out exactly. And sometimes people do alternating years, like you'll get credit for it this year and then the following year I get credit. So, you know, one, and this is a very individualistic, conversation. So, I don't want to try to lead too many people astray, but it's basically 5, 000 is what you're going to be able to put away. But that is basically it.
It's more or less per family. So if you have access and your, your spouse or, your partner has access, it's going to be 5, 000 as a family, which, I did a little research on this. You know how long it's been? How long? So this is not been tied to inflation. All right. So this has been, I'll give you a hint. It's more than three decades. So this, this
numbers were set.
This was originally set in 1986. 1986 is when this came into play and it was 5, 000. If you were to cautiously plug back in what inflation has been, and not even child care inflation, because much like higher education, it is inflated at a higher rate than just typical things, household goods, it would be about almost 15, 000. It's about 14,
Which is more accurate.
which is more accurate.
what it would cost.
So I would challenge this like we're trying to get a grassroots campaign here. We're trying to get More firefighters to listen.
This is just outside the even the colorado metro area So if this somehow makes its way to edzo kelly the gst frankie lima himself The executive board of the iff people that are really driving policies and decisions on behalf of our members They're working their guts out right now trying to get the windfall elimination provision the WEP and the government pension office at GPO Basically repealed and they've made a lot of headway and they're actually going to vote on it in congress here in about a
month So we'll see what happens with that and they've been doing excellent work If you're looking for really what's going to affect the membership moving forward and something that's tangible that would affect all IFF members Participants, I encourage you guys, I implore you guys to start, you know, getting with the lobbyists and getting with our congressional leaders and really trying to, I mean, this is something that's just not right.
You can't go back for 40 years and say like, this is really, it's not even putting
it. Please. Yeah.
It's not putting a dent in it. And that's something that, I'm passionate about. I know who's passionate about, we got a lot of our members. it's, it's a really big challenge to pay a mortgage right now and pay for childcare. So this is something that's tangible and something. So if you're listening out there, man, grassroots, send it, smash it, subscribe, you know, tell your friends about it.
And really let's get, let's get the people that are helping drive policy, because this is going to happen at the national level. we can talk about our Colorado legislators and maybe get them to co sponsor something. And we can start that way, but like, this is going to be a national thing. It's, it's part of the IRS tax code. So even if we get a couple of Colorado folks that are on board, that's not going to move the needle. They're definitely gonna have to move the needle.
So it's, it's something that it's just, it's crazy to me that when I did back, when I looked back at that, I was like, you gotta be kidding me. This has almost been 40 years that this has not changed. And just the cost differences. is really crazy. So hopefully that helps just give a little bit more context, for what the dependent care FSA is all about, what you can actually contribute to, what's actually qualified expenses versus ineligible expenses.
And really, just can't highlight enough that earned income. So both you and your spouse, if you have a family, you have to have. Both have to have earned income to be a qualifier for that. so one of the things that often gets misconstrued with the Dependent Care Flexible Spending Account is there's also something called the Dependent Care Flexible Spending tax credit, which is not to be confused with the child care or with the child tax credit. So there are two separate things.
but once again, this is also in a publication 503. If you want to research this, it's basically a, a tax credit that you can put towards eligible childcare expenses, just like kind of the dependent care FSA. And currently it's a 3, 000. If you have. One dependent child and it's six thousand dollars if you have two or more dependent children or anyone Really that qualifies as a dependent per the irs regulations and tax code.
it's not three thousand per child Child because yeah, I mean if you got six kids, you're like man, this is great, man I'm making 18 grand all day long. No, basically the max if you have more than two dependents is gonna be 6, 000 so these things and the IRS is smart. They don't want you double dipping So and I find myself in this situation situation every year. So we max out our dependent care FSA. So that's 5, 000 a year that we get to put towards that. And then we have two dependent children.
So basically our credit is 6, 000. So what the IRS is going to do is they're going to take that 5, 000 that I've already contributed to my dependent care FSA and subtract that from my 6, 000 maximum dependent care Tax credit.
So basically i'm gonna have a thousand dollar leftover tax credit if you will and from there i'm going to get a little bit more savings and really to make this very clean and pretty simple If you and I would argue most firefighters in the country are over this threshold But basically if you're over forty three thousand dollars a year adjusted gross income from a tax perspective Typically you would be better off Going with the dependent care flexible spending account maxing that out And then
whatever leftover you have if you have anything left over that thousand dollars You can then use the dependent care tax credit once again, this is a lot of misinformation when I was looking doing on some research on this There's a lot of misinformation about this specifically Once again, always consult a tax professional when we're talking about taxes and everything else, but just how that how that works
And John, do you know if, if you do the, if you do taxes yourself, let's say through TurboTax or other software, will it do that calculation for you? It'll determine the amount that you have through FSA spending.
Yep, there's a specific box and man, I can't remember box 10, box 12, something on your W 2 that you'll get from your employer that will basically say, Hey, we withheld Monday for specifically for dependent care. It's going to recognize that on the tax software and then it's going to automatically recognize like, Oh, okay, you've actually already contributed 5, 000 to this. You're actually only eligible if you've got two kids for another thousand dollars and then it'll use that multiplier.
So the tax software is actually. Come up with a lot of these things. So you shouldn't have to be importing a lot of these things. there's a form, I think it's called, man, 24, 41. I think it actually itemizes like your childcare expenses. And once again, like back in the day, when you had to do this by pencil, like you'd actually have to go line by line and fill all these other things. So the software, really has come a long ways, but it will flag that.
So it really shouldn't allow you to mess up on that. but I have had some people. We want a little bit more greater explanation of like, Hey, because of this, am I better off? Like not doing the dependent care and just going all in on this tax credit. And the moral of the story is for the majority of our members, I would say that it's probably in your best interest, not knowing you're specific, to go ahead and do the dependent care FSA.
and the one thing I actually learned from a planning opportunity, and it just kind of hit me. So I've always been the one that Does it through, for our family, does the dependent care flexible spending account, I've always done the 5, 000 and I was like, Hmm, that's interesting.
We would actually save an additional about three hundred dollars if I had my wife Katie do it Because my wife Katie works for a corporation and she pays into social security So she is going to save on that FICA tax that's 6. 2 percent Because this is not taxed your state Yeah, your federal state and And FICA taxes will not, will not come into play.
So we actually had a little conversation around the Beatty table about like, well, maybe actually it would be better if you are the one that has this taken out, of your account. And honestly, it's 300, but it's 300. and always, once again, take into account for, All of these plans, there's a certain amount of money that it costs to administrate, and it'll definitely say on your plan documents, what it basically costs you to have this. It's a couple bucks.
No, it's, it shouldn't, it should be negligible and that should not be driving the conversation. But the conversation should be driving from just like a tax perspective. Like you have the potential to save more tax if your spouse or your significant other actually has, Social security withheld from their from their employment. you can save a little bit money on that So just something something to think about.
Yeah, so I just something I wanted to bring up So really why are we talking about the fsa's generally really? It's all about Trying to save on taxes, right? You already know you're going to spend this. This is not, this is not manufactured spending. This is stuff that, you know, it's coming down the pike. You're going to pay for it. So let's pay for things a little bit more strategically, use the tax code to our advantage, save on that money. And then all that money you're gonna save.
We're going to invest it for later on, right? So it's all about rinse and repeat. So then you have a little bit more, wiggle room as far as that, anything else you want to add from any of the, FSA stuff, either the dependent care or the healthcare, hopefully it wasn't too weedy. Hopefully we didn't get too much in the weeds on that, but I hope we gave enough of explanations that
yeah. And listen, and guys, we understand like this is a dry subject, right? Talking about FSAs, these accounts, open enrollment stuff. We get it. We just think it's important because there's a lot of questions. So if we can address some of those issues from a budget standpoint, from a financial perspective, we feel like we're doing you guys a service by providing that. And so that's why we wanted to discuss that.
I would say, One thing that we want to just reiterate is look at your expenses, look at what you've spent on healthcare in the past or dependent care on the past and see. Now, if you have budgeting software, if you budget like we talked about in episode one, that's pretty easy. You can probably go through your budget and figure out what you've spent in the past and kind of see if that's your plan for this upcoming year.
And you can make sure that you set your, Contribution to these FSAs appropriately. So I would just encourage you guys to really look at that and consider that as we enter open enrollment season.
Yeah. Well said Louie. so now kind of the last topic that we're going to address is a health savings accounts. And this is Louie's, you're talking, this is like putting on Lionel Richie
Oh yeah.
Just set in the
hot tub and Lionel Richie.
That's right. You're setting the table. so this is something, so, once again, we'll preface this. so health savings accounts, West Metro currently local 1309 members. You do not have access to a health savings accounts. All right. So this is something that you have to have a health Insurance that qualifies for HSA eligibility in the and all the insurance companies and employer plans They're very specific.
It should tell you within the title that this is a high deductible health plan HSA eligible they shouldn't be any like Well, I didn't really know that that was the case. So you should know if you have access to this, just honestly, in the title of the insurance that you have, if it's a high deductible health plan, more times than not, it will be HSA eligible, but if it specifically says that is HSA eligible in the title, you know, you're good to follow under these HSA provisions.
we, and just to say it again, West Metro currently does not offer high deductible health plans. So this is not something that you as a local 1309 member would directly be able to contribute to. However, you might have a spouse who works for a company or an organization that has a A high deductible health plan that is eligible for an HSA. And in that event, there are some really cool features and some really cool things about an HSA.
And we just want to talk about those in case you have that opportunity or that option.
Yeah, we just wanted to raise awareness. I think there are some of our members that do have, a spouse, a significant other that does have a HSA open and they're using it. And once again, trying to reach a broader audience as well. I know just in the metro area alone. There's other departments that have high deductible health plans, HSA. So we just wanted to kind of put that information out there. So, you know, first and foremost, What, what is an HSA? What, I mean, what's,
why'd you ask?
What, what makes an HSA, you know, what makes it, first of all, what makes it a health savings account, but what are some, maybe the advantages of why you'd want one?
so an HSA is a savings account for people that have high deductible health plans, and more importantly than a savings account. It is. An investment account. So if you have an HSA, a certain amount of your paycheck, a certain contribution amount is put into this health savings account and it's put in on a pre tax basis. A lot of people in the financial independence. Movement or the financial independence community. They really really like these accounts because They're triple tax advantaged.
You'll hear that term when talking about HSAs a lot What triple tax advantage means is that the money goes in on a pre tax basis So that reduces your taxable income It grows tax free And then As long as it's spent on eligible, expenses, it is spent tax free. So in some ways it's even more powerful than, a Roth IRA or a 401k or a 4 57 because you get basically that triple tax advantage from that account.
So. What a lot of people do is they'll contribute to an HSA, and then they don't even spend it on healthcare. They will cashflow their medical expenses throughout the years. And then they will use their HSA. They will let it grow. They'll invest it. You can choose low cost index fund options to invest your HSA in, and then have that grow and grow and grow throughout your career, and then you can use it for healthcare expenses in retirement.
You'll have this big fat account for health expenses in retirement.
Yeah, that's, that's no true words have ever been said. And honestly, from like a planning perspective, there's no other vehicle that has kind of this holy grail of, of tax free options. Honestly, there's nothing, even when you're talking about, like Louie said, the, the Roth accounts and all these other things, at some point you're paying tax initially, and then it goes tax free, like this comes in pre tax, https: otter. ai
income earners
and work with advisors or planners, they max these things out every year because it's all, there's no income limits on this, on these either. You can be making 2 million a year and still be able to contribute to some of these things. Whereas when you're talking about some of the other retirement accounts, there does become some limitations on income and phase out limits and all these other things.
So I know there's a lot of, there's a lot of, Advice and a lot of strategy involved directly with these accounts So once again, you will know if it's a high deductible health plan It'll say specifically as far as how much can you actually start squirreling away? So they actually do have the contribution limits out for 2025 So this will be for if you are self employed
covered
So if you're individual, it'll be 4, 300. And if you are a family, it is 8, 550 is what the IRS is allowing you to put away. So that is both between a combination of employee and employer. Cause a lot of these plans, the employer will contribute a certain amount to your health savings account. What is really important to know is this is not. Directly attached to your employer. All right, the health savings account.
And one of the things that's really nice about it Besides just the tax savings is the portability So really and this is really common too in corporate america Where you work at a company for three or four years Maybe less and then go to another company for three or four years like that hsa account goes with you.
You can, you just have to when you get employed again, and if you're choosing that insurance, you just have to once again, make sure that it's a high deductible health plan, that it's HSA eligible, and then you can continue on those contributions inside your health savings account. So,
So John, I'll give you a little cool story about that. both my wife and I had HSAs. She has an HSA through her employer, and I had one for my last couple years when I was with the state. And so we both started squirreling away, and we did the whole financial independence kind of mindset where we were just investing it in index funds, letting it grow. when I came to West Metro, I had my HSA come over to Fidelity into their HSA account, still invested, still growing and growing.
And Caitlin, meanwhile, has stayed with her, employer sponsored HSA provider. And we've just been continuing to invest that. Well, the cool thing is even though I only got to about 10, 000, in that HSA account, because it's been invested, it's been getting returns every year. And I've been able to use that for the Birth of my three children over the last four years, and I have been able to.
to
Pay for all of those expenses with just the HSA. So with my HSA, and I still have like almost nine or 10, 000, basically what I, basically what I had when I left CDOT, I still have because it's been invested. So that's like the powerful thing about it. We decided not to save ours for retirement because we already have hers. I'm going to have the RHS when I retire, which like we said, we'll talk about later in a different episode. But I think that just kind of shows like the power of the HSA.
Like I was able to invest that and then basically use the dividends and the interest and the growth to pay for medical expenses and I still have that principle left or at least the overwhelming majority of that principle left. So I think that's why people really like them. Like that's a really, really cool thing that you don't get with an FSA. You don't get with other kind of. You know, savings accounts is you can use those all and they're all tax free.
Once again, I got, I got the tax benefit when I put the money in and I got the, got the tax free growth. And when I reimbursed those hospital trips for the three boys, those were all tax free as well. That's a really, really cool
It's a very cool thing. And that is a good segue, if you will, is when can you actually incur those costs and then distributions? Cause that's another thing that a lot of people have recognized is that you know, If you, are very organized like Louie is, and you can save your receipts. basically you can get reimbursed from your HSA. You can backdate it as far back as when that account first opened. So there's a lot of people that have, these accounts have been opened. I think.
I think since like the early 2000s, 2003, 2005, something like that. so there's been people that have been saving that up for the last 15 or 20 years, all their healthcare, they've got the receipts, and now they're starting to be in retirement, and now they're submitting those receipts for reimbursement. So it doesn't have to be in the year that you incur the cost, like the FSA is. So that's another, Difference between the two programs.
But, once again, if, or if you had a major surgery or something and had a lot of bills in one year, but you were able to cashflow it and continue to save money, like you can save all those receipts for a rainy day and then when you
cash them in, whenever you
yeah, and when you're trying to keep your, especially when you retire and maybe you're trying to keep your taxes a little bit lower because you're getting a defined benefit now and you can't reduce that tax because it's coming in. Like there's actually money that you can go out and get that is going to be
tax free
And you just submit those receipts. So it's another layer, another, additional strategy that if I think you're really savvy and trying to maximize the HSA as much as possible, it ends up working really nice in your favor. There's not a lot of other programs that can do that.
it's a really cool program
so that was, I'm really happy that you addressed that. The one thing that I did forget to admit that, you actually are, much like a lot of the other retirement vehicles, you are able to save an additional 1, 000 a year in your HSA if you're over the age of 55. So just get, it's a catch up contribution. So there's a lot of money that you can squirrel away. So, really how is it different?
It probably sounds simple, but how do you think a high deductible health plan is different than a non high deductible health plan? What are the, what are the major differences with that?
Yeah, I think the the answer is right in the title, right? It's it's higher deductibles.
So We have some lower deductibles with our health plan and in a high deductible health plan you can have deductibles that are in the Multiple thousands of dollars before you hit that deductible and for a family I think even be like ten thousand dollars or more depending on the high deductible health plan And so, you know if you're the kind of family that has a lot of medical expenses every year, maybe a high deductible health plan is not for you.
Maybe that's not the best option because you'll be paying a lot out of pocket before you hit that deductible. So in that circumstance, it might not be worth it. If you're relatively healthy, if you don't have kids, maybe deductibles are never something that you ever hit. You never have to worry about out of pocket maxes. And in that case, a high deductible health plan might make sense.
once again, not an option at West Metro, but very often an option, for spouses who are in fields that have high deductible health plans.
And, one of those things, I mean, it sounds very easy. So typically your premiums will be a little bit lower with a high deductible health plan because you have such a high deductible. and also your max out of pocket costs can be really high. High. So just be aware of that. If you are in a high deductible health plan, having a little bit more extra in reserve in that emergency savings account.
So once again, if you do have a pretty significant illness or injury in which you're not only going to hit that deductible, but then you're going to start to get to that max out of pocket. I mean, You can be talking tens of thousands of dollars in some cases, you want to be able to have that money in reserve and not have to go to a credit card or something else. So just something to be mindful of.
And if you're relatively young and healthy and don't have a lot of, healthcare expensive, the HSA can be a really good strategy to set yourself up for future successes. so what is not eligible? Who is not eligible for an HSA? I think it's important to talk about that is if you're already on Medicare, that makes you HSA ineligible. You can't contribute to that. if you're covered by another health insurance policy, or if you you're dependent. For income tax purposes.
Those are kind of the three big outliers of who is not eligible, but for the most part it's going to be it's going to be the majority of people that will be eligible that at least are listening to this So maybe to wrap up at least a little bit of why use the hsa we already talked about it three levels of tax savings right the holy grail if you will Definitely portable. All right. So it's not tied to your employer. You are the owner of the account. All right. So it's transferable.
If you switch jobs, it can provide that safety net for healthcare emergencies, kind of like you talked about Louie. and it's also, it can be flexible. So not only can you use it for, related healthcare expenses, but let's say you've just been really blessed and have not had any health issues. issues at all. You've been doing this for 40 years and you haven't really had to pay for much of health care. Maybe a doctor's office here or there. So you've just squirreled away half a million.
Or more of money. When you get to the age of 65, the IRS will actually let you start taking out money out of your HSA for non qualified medical expenses. And then basically you're just paying ordinary taxes on, on whatever you're withdrawing in that year. So I've seen a lot of people do that as well.
you're saying once I hit that age, it's just like a Roth IRA.
It's just like, it'd be like a traditional
or traditional
exactly. It'd be just like a traditional IRA where you're just going to get whatever, minus the basis, what you're taking out, that's going to be taxed at your normal, marginal tax rate. And then you go from there. So once again, like from the planning perspective, the.
You know the person that really nerds out on that stuff like it offers a tremendous amount of flexibility one thing I would be remissed if we didn't talk about this and it's very common and I don't think it's articulated very well, and i'm not blaming anyone for this but it's can you use an hsa and an fsa together?
Of course,
You must you must be able to it sounds too good to be true well in the irs's eyes It kind of is. So, first of all, you can always use a dependent care FSA with an HSA. That is, that is kosher all day long. I would recommend doing that if you have access to both. you can use, once again, what we talked about in the beginning of the segment, a limited purpose healthcare FSA. with an HSA that will also make you a HSA eligible.
What you cannot do is you cannot have a general purpose healthcare FSA and an HSA at the same time. And really where you get tricked up with this is, let's take an example where we have, a firefighter that works here. They're on, The fire department's insurance. All right. And their spouse is on another employer's insurance. once again, here at West Metro, we don't have health, HSAs. so they're just on our regular insurance, but they're like, you know what?
I think we're going to have some medical expenses coming up. We're expecting a kid next year. I'm going to save up. 3, 000 for, in, in my FSA and my healthcare FSA. So they elect that. Meanwhile, their spouse is on an HSA plan. This is where it gets tricky is, as soon as you elect that coverage and you start contributing to that, healthcare FSA, you will then make your spouse ineligible from an HSA contribution standpoint, not only from the employer, but also from the employee.
So something to be. Cautious of it doesn't mean that they're going to lose their health insurance. They still have health insurance, but their ability to contribute to that savings plan is gone. And you can actually, if you, if you let that go unchecked, you can actually end up paying some, excise taxes down the road. And it sounds really weird, but you're like, well, I have my own insurance and they have their own insurance. Like, why is that?
Because the IRS really doesn't care because even if you are the only one on the insurance from the fire department, you can still use that those monies. Those FSA monies, those healthcare monies to then pay for certain expenses that your other spouse may have. So it just makes it ineligible. So I, before we did the pot, I was talking to someone about this or I, I had no idea that was the
You were probably talking to me. I honestly, I didn't know that either. I, we were talking about this maybe a couple of days ago and I. I was like, man, I didn't know that you couldn't contribute to an health, a healthcare FSA and an HSA if you have two separate, you know, employee sponsored health plans. So thanks for sharing that.
Yeah, no,
like a very little known thing, or there's probably at least a lot of confusion about it. So thanks for clearing that
Very small nuanced stuff. So once again, that's kind of I think our goal here is stuff that comes up like hsa's are very common especially for our spouses and our significant others at the fire department So we just wanted to kind of shed some light So, it's something to think about there anything else as far as Topics that we should be covering? HSAs,
FSAs? No, I mean, that was a deep dive. I know that's a lot of. A lot of heavy material, but, it is important and it's an option that at least some of those options are available to us. So I'm glad that we kind of cut into it and maybe hopefully shed some light on how that works.
Yeah. And once again, we're always trying to solicit feedback. We want to make this stuff that is usable for the members out there, the audience out there. So once again, if you guys want to hit us up, best way is probably email askfiscalfirehouseatgmail. com. that will go directly to Louie and I's inbox. And, we'll start going through those. We've already received Couple, we're going to start getting to some, user questions here in the future and build that into the pod.
but really appreciate, we've had a lot of really, strong feedback from the members that, a lot of them are very appreciative of what we're trying to do here. So that definitely gives us motivation and keeps it going. And once again, we're trying to grow this grassroots style. man, if I get an email from. from Edzo Kelly within a couple of days. And this thing has
will.
I know, I know we're making some ground, but this is important. Like there is a lot of financial advice and there's a lot of financial podcasts. but none, and I try to search it out that are tailored to professional firefighters, and that's what we're trying to do here is we're trying to give you guys information that is specifically for firefighters and improving the financial literacy of firefighters.
So until, next month we'll be signing off, but, thanks for all you guys do out there, be safe out there.
Thanks everyone.
Take care. The Fiscal Firehouse Podcast is a podcast curated specifically for local 1309 members. This podcast is for informational and educational purposes only, and should not be construed as professional financial advice. Should you need professional advice, consult a licensed financial advisor or tax advisor. The opinions of John Beatty, Louie Barela, and their castmates are solely their own, and don't reflect that of West Metro Fire Rescue.