Most People Haven't Heard of These Tax Breaks

Thank you to Brilliant for supporting PBS. Imagine you're starting a new job and your employer asks you to fill out benefits enrollment paperwork. That's where you decide which perks you want to opt in for, but it can be a little confusing. Okay, definitely want the 401k, but if I already have health insurance, I don't need an HSA, right? Or is that an FSA? What is a 529? You're already stressed about starting a new job, so you might just be tempted to skip it all. Besides, most of these so-called perks are coming out of my paycheck. I'd rather keep the money, thank you very much. Even if that means missing out on some serious tax breaks, the whole point of these tax advantaged accounts is that you end up saving more than you put in. They may not all be the right fit for you, but if you don't even know what they are, you could be leaving money on the table. Have you ever heard of like, um, an HSA or FSA or anything like that? I have not. Have you guys heard of or do you use, um, 529 college savings accounts? Have you heard of these before? No, I have not. Never heard of it. of it. — No, I haven't heard about that. Um, I have heard of a few, but I'm not familiar with most of them. Okay, if you don't know what all these letters mean either, let's break it down. An FSA, or flexible spending account, is an account you can put money into tax-free, usually in the form of a payroll deduction that comes out of your paycheck before taxes are applied. Then, you can use those pre-tax dollars to pay for medical expenses like prescription drugs, co-pays, certain over-the-counter medications, even sunscreen and tampons. And if you have kids or an elderly or disabled family member, dependent care FSAs let you put aside pre-tax income for qualified caregiving costs. What's the catch? You have to decide how much money to contribute to your FSA at the start of the year, and you have to spend it by the end of the year. It's mostly use it or lose it cash, though some plans let you roll over a limited amount or give you a short grace period. So, if you have regular expenses like diabetic testing supplies or a daycare tuition, an FSA can be a great way to save money. But, put away too much and you might find yourself buying a bunch of band-aids or sunscreen you didn't otherwise need just to use up your balance. And if you forget FSA by the end of the year, with a few minor exceptions, you lose that money for good. FSA, like a financial? — It's a flex spending account. It's where you can spend it on It's kind of use it or lose it. — Oh, yeah. No, I don't have that one. What about a health savings account or flexible spending account? I don't have that, but I spend a lot of money on health care. Do you ever think that like maybe these sorts of things are really meant for people who make more money or who are rich? Yeah, I mean, that's where it seems like it's all going to. Yeah. If that deadline seems daunting, an HSA might be more up your alley. Health savings accounts work similar to FSAs in that you can save pre-tax income for qualified health expenses. But, unlike an FSA, the money you put in an HSA rolls over from year to year. You can even invest the money you set aside so it can keep growing until you're ready to use it. That means an HSA can secretly be a way to save even more for your retirement. You pay no tax on the money going in because you can deduct whatever you deposit each year from your taxable income. You also pay no tax on the money as it grows through investment, and no tax when you take it out, as long as you use it for approved health care expenses. Though, unlike a retirement account, there's no penalty if you need to take out the money sooner to pay for medical expenses you have now. Your employer may even contribute some money to your HSA for you. Three quarters of employers offering these plans do. But if your employer isn't so generous or you're a freelancer or gig worker, an HSA may still be an option. As long as you have a high deductible health insurance plan, you qualify to open an HSA privately through a bank or brokerage. And these pre-tax dollars can make a big difference when you're paying for all of your health care costs on your own. We do not currently have an HSA or FSA. We did, but they switched the health plan. But now they've just lowered our deductible instead. — I do not have extra funds to put into it. — Yeah. So, I'm not trying to invest in the 401k. Where HSAs and FSAs help you save for health care costs, a 529 can help you

save for education. You still pay your regular taxes on the money you put in, but that investment grows tax-free and can be spent tax-free on things like college or trade school tuition for your child or even a degree or professional certification for your future self. In 2025, the cost of tuition for four years at a public in-state university reached almost $50,000. And that number might feel impossible to save, but with the power of compound interest, investing $143 a month into your kids' 529 account from birth to age 18 could get you there. Non-retirement tax-advantaged accounts can cover more immediate expenses, too. Depending on where you live, your employer might offer commuter benefits that allow you to set aside the money you spend on parking or public transit in a pre-tax account to cut down on the cost of getting to and from work. Once I had a kid, it was important to me that she have enough money to go to a good college. So, that was just a priority to me. And so, like from when she was 2 years old, I was just putting money away in it and then it compounds over time. — Either of you guys get benefits through your jobs? I do, but I actually opted out of them. Oh, why? It was super expensive. Of course, there are plenty of reasons why a tax-advantaged account may not make sense for you. Maybe you don't have enough predictable health care expenses to be sure you'll spend all of your FSA. Or maybe your budget is so tight that current groceries are a more urgent need than future education. But don't think of these tax-advantaged accounts as something to do with extra money you have left over after all your other needs are met. While payroll deductions to these accounts may make your regular checks look a bit smaller, that money is meant to cover things you were going to pay for anyway. If you're already budgeting for things like child care, a bus pass, or prescription medications, tax-advantaged accounts can help you pay for those out of tax-free income. Let's give a real-world example. Say you and your spouse together make $84,000, about the median household income in the US. You spend $1,000 a year on medications and health care items and $6,000 for part-time day care. Put that money in an HSA and a dependent care FSA and you would save $840. Max out your contributions to those two accounts and that's almost a $2,000 tax break. And if your employer offers a match or contribution to your HSA or 529 account as a benefit, that's also free money on the table. Do you think maybe people think that these types of accounts are for the wealthy or not accessible to everybody? Yeah, I think it feels that way, especially cuz um people who are not as wealthy are much more focused on how am I going to get to tomorrow and the next day rather than how am I going to get to 50 years from now? I would first analyze your income and analyze your spending. Premium things that you're not needing, and if you accumulate all those, let's say it's 150 bucks a month. Yeah, take that and just put it into an IRA or put it into something that yields return over time. Sure, all the forms and rules and three-letter acronyms can seem like a total headache, but the tax breaks they provide are supposed to make your life a little easier. So, next time you get a stack of employee paperwork, take your time. Ask questions. Sticking out that short-term discomfort of figuring out which of these tax-advantaged are right for you could make you more financially comfortable in the long run. And that's our two cents. Thank you to Brilliant for supporting PBS. Brilliant is designed to help learners excel in math and computer science with visual interactive problem-solving and personalized practice. — If you're into mathematics, Brilliant's math courses can take you from foundational math through algebra all the way to college-level calculus with more courses being added each month. You'll work your way up through interactive challenges that bring abstract concepts to life. Brilliant courses focus on useful applicable math concepts with the goal of achieving personal and professional growth. To try everything Brilliant has to offer for free for a full 30 days, visit brilliant. org/twocents or click on the link in the description. If you go now, you'll also get 20% off an annual premium subscription. Thanks to our patrons for keeping two cents financially healthy. Click the link in the description to become a Two Cents patron.