Son needs braces

The dentist told Sandra that her son will need braces sometime in the next two years, and she's already stressing about the cost. But the good news is she has time to plan and think creatively about how to cover the expense. Orthodontia is an eligible expense under both an HSA and a Limited Purpose Flexible Spending Account (LPFSA). That means she can use these accounts to help her pay for out-of-pocket expenses on a tax-free basis.

So rather than panic, Sandra goes into planning mode. Here are the steps Sandra takes to manage the costs:

  • First,Sandra gets an estimate from the orthodontist office, so she knows the total amount she will be working with. She receives an estimate of $4,800.
  • Next, she checks on her dental plan coverage to see if orthodontia benefits are included, and if so, what out-of-pocket amount she will be responsible for. (Some dental plans cover up to 50% of orthodontic treatment, up to a certain maximum, but plans vary, so be sure to check your own plan.) Sandra finds out that her dental plan will kick in $1,000; which means she'll need to budget for the $3,800 balance.
  • Since Sandra has this information in advance, she is going to maximize her HSA contribution for the current year. She (and her employer) may contribute up to $6,750 as a family contribution for 2017. (If you are already contributing to your HSA through payroll deduction, check to see that you are contributing the most you can on an annual basis, and make any adjustments during the year if needed.)
  • Once Sandra's son begins orthodontic treatment, she will have built up some funds to cover her out-of-pocket costs of $3,800, and she works out a monthly payment arrangement. Since she has an LPFSA, she must use the amount from this account first, then withdraw from her HSA. Luckily, her $2,600 LPFSA balance covers over half of the amount she needs, then her HSA will kick in the rest.
  • Plus, with her HSA, she can set up recurring payments –on a monthly basis, for example- to pay the orthodontist so she doesn't run through the funds all at once.

Two years later, when Sandra's son completes his treatment he'll have a healthy smile and Sandra's HSA will still have a healthy balance.