Smart Money Podcast: Single-Income Couples, and When to Use Your FSA and HSA

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a discussion about how to navigate moving from two incomes to one and preserve equality in a relationship.

Then we pivot to this week’s money question from Yang in New Jersey. Their voicemail: “My question to you guys is you've talked about FSA and HSA. What is the relationship between that and your health care? Is that in and of itself a health care or is that different from paying into premiums, such as a high-deductible plan, so on and so forth. Thanks, bye.”

One more note: We are diving into student loan debt for a new podcast series, and we want to hear from you.

If you have student debt, tell us, in a minute or less, what it would mean for your life if your loans were forgiven. Or if you’ve already had your debt forgiven through existing programs, let us know what that did for you.

To let us know, please leave a voicemail on the Nerd hotline at 901-730-6373 or email a recorded voice memo to [email protected].

Check out this episode on any of these platforms:

• Apple Podcasts

• Spotify

Our take

Moving from two incomes to one is more than simply rethinking your budget. While figuring out how to cover expenses with less money will be part of it, another part is figuring out how to maintain a relationship of equals. One crucial aspect of budgeting is to make sure that both partners have some personal money to spend with no questions asked.

Predicting medical expenses and choosing health insurance can require some careful calculation and a bit of guesswork. A crystal ball would be helpful. Health spending accounts and flexible spending accounts are not insurance, but they are tax-advantaged ways to pay medical expenses.

A health care flexible spending account is offered by many employers. Employees can contribute pretax dollars of up to $2,850 in 2022, but the year’s total may be spent before the account is actually funded. It can be used for copays, diagnostic tests, vision and dental expenses, and more. Typically any money left in the FSA at the end of the year is forfeited unless your employer allows you to roll it over. If you leave your job before the FSA is fully funded, you do not have to repay what you spent. An FSA can both increase take-home pay and decrease taxes.

A health savings account must be paired with a high-deductible health plan — defined as having a deductible of at least $1,400 for an individual in 2022. The maximum annual contribution for an individual is $3,650 this year, and twice that for families. Money that is unspent rolls over. Contributions are tax-deductible. The money in the account also grows tax-free and is tax-free at withdrawal if it's used for qualifying medical expenses. HSAs are generally best for people who are healthy and have historically had low medical expenses or whose medical expenses are typically very high, so that they know they will easily meet the deductible. They are not a good fit for anyone who would be tempted to skimp on medical care to avoid having to pay out of pocket.

Our tips

• Compare your options. HSAs and FSAs function in similar ways but have key differences. Know which is best for you and your health care needs.

• Know the limitations of both types of accounts. Both HSAs and FSAs can cover things like copays and medical bills, but typically can't be used to pay your insurance premiums.

• Make the most of your HSA. If a high-deductible health insurance plan works for you, the triple tax advantage of these accounts makes them a smart option for investing while saving for health care costs.

More about FSAs and HSAs on NerdWallet:

How to Harness Your HSA’s Superpowers HSA vs. FSA: Differences and How to Choose HSA Taxes, FSA Taxes & How They Work in 2021-2022

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: What happens when a two-income couple becomes a one-income couple? How do you handle the finances and what can you do about the changing power dynamic? I'm Sean Pyles, and this is the NerdWallet Smart Money podcast where we answer your personal finance questions and help you feel a little smarter about what you do with your money.

Liz Weston: I'm Liz Weston, let the Nerds answer your money questions. You can call or text us at 901- 730-6373. That's 901-730-NERD. Or email us at [email protected]. To get new episodes delivered to your devices every Monday, be sure to subscribe and if you like what you hear, please leave us a review and tell a friend.

Sean: This episode, Liz and I answer a listener's question about FSAs and HSAs, which are accounts you can use to save on taxes and pay for your medical expenses, and HSAs even allow you to invest for the future. But first in our this week in your money segment, Liz and I are talking about what happens when a dual-income couple becomes a one-income couple, either by choice or circumstance. This topic was inspired by a recent article from occasional Smart Money co-host Sara Rathner titled, "How one-income couples can remain equals." And this has been pretty top of mind for me lately because my partner is currently going to grad school and we've been thinking about what it might look like for us to have me as the primary earner in our household.

Liz: Oh, interesting. Well, I've been the sole earner a few times and it's an interesting place to be. Let me tell you that.

Sean: I imagine there are a lot of emotions that go into this. It's not just a budgetary decision. So one thing that Sara talks about in her article is the importance of acknowledging the emotions and changes in stress on both parties.

Liz: Because you think that, OK we're an enlightened couple and this'll be fine, but when all the earning is on one person's shoulders, it can be a little stressful. So just acknowledging, OK, this is the situation now, it might not continue this way, but this is what we've agreed to now.

Sean: I think it can be helpful for couples to monitor changes in how they're feeling internally and toward their partner. If someone feels resentment because all of a sudden they're ponying up for everything or the other person feels guilty asking for a little bit of money to go out to dinner with a friend, that can be a problem.

Liz: Yeah, and one of the things that Sara points out is that the nonworking partner can also have lots of emotions. It's hard to be dependent on somebody else. And you also would worry about maybe having less say in financial decisions, "Well, I'm not working so I can't be a voice in these decisions." And that's not good for the relationship obviously.

Sean: You have to keep things as equitable as possible, I think. Because one thing I'm thinking about with this dynamic with Garrett, my partner, is that this is a chance for us to really hone in and think about in a very real sense the fact that we are partners and we're working toward building our lives together for the long term. And that's going to mean working through difficult and changing circumstances over the course of a long life that we hope to have together.

Liz: And some people are considering this because they want to have a baby and they want one partner to stay home or maybe somebody lost a job and this was not voluntary, which means that has another set of expectations and stresses attached to it. So talking all this through can really help your relationship.

Sean: And at the same time I know some couples where one of the partners has quit their job because they were tired of the working conditions that they were under and they joined the great resignation, and now they're taking a month or so off to reevaluate what they want out of a job. The other partner is saying, "Hey, that's fine. We budgeted for this, take that time." But, eventually, get out there and look for something that's better and hopefully pays you more than your last job.

Liz: I also hear from people who initially made the decision together, OK one person's going to stay home and the working partner winds up resenting it. Either it lasts longer than they expect it to, or they decide they don't like being the sole owner and they want things to change and the other partner is resistant. Again, talking about this as you go along can really help make it clear what everybody's expectations are and adjust them as you go along.

Sean: Exactly. I was just going to say it's important from the outset before one person quits their job or hopefully if someone's on thin ice with their current job and they think they might get laid off, have that conversation and set expectations of, OK, here's how this might work for us. And then I think it could be helpful as well to set a time frame of, OK, is this going to be a one-month thing, a three-month thing, maybe a six-month thing and try to time-box it so that you can hopefully, if you want to get yourself out of the situation and if it's going to be a permanent situation, figure out what your budget would look like again, because that's very important as well. You need to go through your finances and budget for the lost income and potential benefits like health care.

Liz: If you're going to do this long term, think about the nonworking partner’s retirement as well. You're going to have to compensate for the fact that not just that they're not earning, but also that they don't have an option to save for retirement at work. So you’ve got to make up for that somewhere.

Sean: And even beyond finances, I think it can be helpful for a couple to talk about all the ways that both parties are contributing to the relationship and the household. It's beyond just bringing in money, it's who is doing all of the less visible work around the house, like what's being cleaned? Who is having meetings with your financial planner and maybe getting that work done? Often is the one that's staying at home more.

Liz: Yes.

Sean: But as I mentioned, with Garrett in grad school now, we are thinking about him maybe going part time. And so it's not the same thing as him totally quitting, but what we're talking through and beginning to evaluate is what would our finances look like if he is making half as much as he was before? So we're trying to find a system that would be equitable, that feels fair and is also simple to manage because I think that can be a source of stress and potential resentment if you're continually spending a lot more time and mental energy sorting out your budget. So one thing we've talked about is maybe I cover all of the groceries and some utilities. So that way it's easy and we have clear expectations of who's paying for what, but it's not, OK here is how our money fits in proportionally, here's the percentage that I'm going to cover. That's just not how we tend to approach things. We like it to be simple, but that's not how every couple's going to want to approach it.

Liz: And he would still cover the mortgage for the house in Portland, right?

Sean: Yeah. My partner has a house in Portland, I have my place in Washington and we each would cover our own mortgages, but I would cover all of our groceries regardless and maybe some utilities in Portland as well as my own in Washington.

Liz: Well, I like that. We didn't talk this out nearly like that probably, when it happened to us. So at the time, my husband was working in the animation industry, which was very much gig to gig. And there were a couple times when the gigs were much shorter than expected basically because the project got canceled. I'm thinking of one where he actually showed up, got his desk, was waiting for his supplies to arrive, and within five days they had canceled the project. And the woman in HR was rushing to tell him it was nothing you did. And he was like, "Well, of course it wasn't and I hadn't even gotten my supplies yet." But that's kind of what that business is about.

And we had to navigate this and figure out, OK, when I'm the primary earner, what is that going to look like for him? One of the things that Sara mentioned in her article was, you’ve got to make sure that the nonworking partner has money to spend and is not coming hat in hand to beg from you. But don't call it an allowance. And I love that because an allowance has that parent-child dynamic.

Sean: Exactly.

Liz: And you don't want that in a romantic relationship.

Sean: Do you do your chores? Here is your money to go get some gum or whatever.

Liz: Yeah. But on the other hand, you also want to talk about if somebody is staying home, is not working, what will they pick up because a lot of times, as you mentioned, there's a lot of invisible work that gets done. If I had expectations that he would do X or Y, I needed to make those clear. Like are you going to take over more of the housework? Am I going to wind up doing all the dishes kind of thing? And we did work it out eventually, but there's a lot of stuff that you kind of assume as a partner and it basically needs to be spoken. You need to make these agreements clear.

Sean: Well, you know what they say when you make assumptions, right?

Liz: Yes. Exactly.

Sean: And I feel like there's also a gender dynamic at play with what you’re describing as well. Sometimes there is an aspect of, in my experience, men not fully understanding all that goes into keeping a house clean and afloat, where I had tons of chores to do growing up so this feels instinctual to me. But sometimes if someone didn't have that upbringing, it can take a little bit of time to show them, OK, the dishes don't just disappear into the dishwasher. They're placed there thoughtfully. And then maybe you can put them away. Like, what is your system? And I think having a dynamic like this where one person is at home can help you flesh that out. It's actually an opportunity for a lot of communication and growth in your relationship.

Liz: We started our marriage thinking, OK, we're going to be very equitable and we're going to divide things up. And what happened is we turned it into Lucy and Desi, honest to God, I was doing everything inside, he was doing everything outside. And like, OK, now we've got it worked around to where we do what we really enjoy or the chores that we loved. Saying what we really enjoyed isn't quite accurate. Let me say, we do the chores that we are least averse to and it actually works out. There's a nice division going on, but it took a while to get there. We've been married, good Lord! It'll be 25 years.

Sean: Oh, that's awesome.

Liz: I know. Whoa! That's crazy. Anyway, so it takes a while to work this stuff out. You just have to have a lot of patience with each other, I think.

Sean: And communicate, communicate, communicate, so important. And one more note before we get onto this episode's money question segment. We are diving into student loan debt for a new podcast series, and we want to hear from you.

Liz: If you have student loan debt, tell us in a minute or less what it would mean for your life if your loans were forgiven, or if you already had your debt forgiven through existing programs. Let us know what that did for you. You can leave a voicemail on the Nerd hotline at 901-730-6373 or email a recorded voice memo to [email protected].

Sean: All right. Now let's get on to this episode’s money question segment.

Liz: All right.

Sean: This money question comes from a listener's voicemail. Here it is.

Listener: Hey, Sean. This is Yang calling from New Jersey. My question to you guys is you've talked about FSA and HSA. What is the relationship between that and your health care? Is that in and of itself a health care or is that different from paying into premiums, such as a high-deductible plan, so on and so forth. Thanks, bye.

Liz: To help us discuss this on this episode of the podcast, we're joined by investing Nerd Alana Benson. Welcome back to the podcast, Alana.

Alana: Hey, guys.

Sean: Alana, let's talk about how FSAs and HSAs work, their function and their relationship to health care plans.

Alana: Both FSAs, which stand for flexible spending accounts, and HSAs, which stands for health savings accounts, function as a kind of bank account for your health. So you save up money and you keep it in either an FSA or an HSA, and when you have health-related expenses, you can use the funds in those accounts to pay for them. In a perfect world, if you had health insurance, your insurance would just cover every expense you have, but that often doesn't happen.

Sean: We live in a far from perfect world it seems.

Liz: Yes.

Alana: So maybe you needed medication that isn't covered by your insurance or your insurance only covers 50% of your acupuncture visit, and that's where your FSA or HSA money would come in.

Sean: Our listener is also wondering about how these plans relate to premiums, which is the amount that you pay for your health care plan monthly. HSAs are only an option for folks who have a high-deductible health care plan. With these plans, the premiums tend to be less expensive compared with regular health insurance plans, but the deductible or the amount that you have to pay before your insurance kicks in will be higher. This is where HSAs come in handy. You can use the money you put into this account to cover health care expenses before your deductible kicks in. FSAs meanwhile are different. These accounts are offered by your employer as an additional benefit on top of your health insurance plan. It's also worth noting that you typically cannot use funds from HSA or FSA accounts to pay your insurance premiums, but both can fund health care costs like copays, medical bills, even things like N-95 masks.

Liz: One of the few exceptions is, you can use HSA funds to pay Medicare premiums. The thing is, if you are on Medicare, you can't contribute to an HSA account. This is why things get so complicated so fast.

Sean: There's a key difference between HSAs and FSAs, and that's how their balances do or don't roll over. Balances in HSAs roll over each year with no limit, but with FSAs, you forfeit any unused balance unless your employer allows rollover, which would be capped at $500. HSAs also have what's called a triple tax advantage. Alana, can you explain what that is?

Alana: This is a really special trick of HSAs and why a lot of people really like them. The triple tax advantage refers to the fact that No. 1, contributions are tax-deductible. Second, growth is tax-free, and then distributions are also tax-free when they're used for qualifying medical expenses.

Liz: Some people are so enamored of that triple tax advantage that they use their HSAs as a kind of supplemental retirement plan. They try to keep the money in there and try not to spend it, they keep rolling it over and investing it year over year because they want to use that money as a tax-free pot in retirement. That's definitely an option if you've got enough cash flow that you can meet the deductible, otherwise, it might not be a great option for people who are living paycheck to paycheck. And actually, some people like this so much that they prioritize their HSA over their 401(k). In other words, they put enough money in their 401(k) to get the match, and then they fund the HSA to the limit.

Sean: Oh, interesting.

Liz: So that's something to think about if you're looking for another way to invest for retirement.

Sean: Alana, if someone is debating between an FSA and an HSA, what should they consider? What are the pros and cons of each?

Alana: So you're going to want to consider how much you're going to be using your health insurance. HSAs are paired with high-deductible health insurance plans. That means you'll likely be paying out of pocket for your health expenses until you hit that high deductible. And according to 2021 research from the Kaiser Family Foundation, that deductible can be really high. The average annual deductible for single coverage is $2,454 for HSA qualified high-deductible health care plans.

Liz: Ouch!

Alana: Yeah, and $4,572 for families.

Sean: It's a lot of money.

Alana: It's a ton of money. And that can be really hard for people to afford. Health insurance paired with FSAs are likely to kick in at a lower deductible and offer coverage before you actually hit that deductible.

Liz: I'd always thought of high-deductible plans as great for people like Sean who barely go to the doctor and never spend much on health care. Terrific, that works. But they actually can be a good fit for people who know they're going to hit the deductible. In other words, if you have high health care expenses, you could wind up paying less overall with one of those high-deductible plans, as long as you got the cash to meet the deductible. And that's the big if, right?

Sean: Right. And Liz, don't you actually have a separate savings account so that you don't have to pull money from your HSA if you do have a medical expense pop up?

Liz: Yes. Again, we've got the cash flow to do this, which I feel very fortunate about. The last time I had an HSA and a high-deductible plan many years ago, I found myself putting off screenings that I needed to get done because I didn't want to have to pay for them out of pocket. And that is the huge disadvantage of high-deductible plans. If it causes you to put off needed medical care, you can wind up in a world of hurt. So this time around, when we signed up, I decided I was going to put the money in a specially labeled savings account, so that in my brain, OK, there's the money, that's what it's there for and I can keep the HSA in a separate account and growing for retirement.

Sean: How I've been trying to think about money in my HSA is that when I do have to spend anything from it for a doctor's appointment, I'm viewing that as, instead of being invested in the stock market, I'm investing that back into my own body and health.

Liz: Oh, I like that.

Sean: I feel a little bit better about it.

Liz: Yes. That's an excellent way to look at it.

Alana: And another thing for folks to keep in mind is if you don't have that HSA high-deductible money ready to go at a moment's notice, it's essentially like you don't have health insurance until you can meet that deductible. So if you go to the doctor, you're going to have to pay exactly what that cost is out of pocket because your health insurance won't kick in until you meet that deductible.

Sean: And that can seem scary, but then you think about how much hospitals may charge you for even a pill of Tylenol, and you realize that you're probably going to meet that deductible pretty quickly in a pinch.

Alana: That's true. I had a high-deductible plan for a while and I didn't really understand it and I had to pay, I think, $600 out of pocket one time for an emergency room visit, and it totally took me by surprise because I thought my health insurance would cover it and it didn't. And so I had to come up with that cash out of pocket.

Sean: Yeah. And that can totally throw off your budget, which is why we always stress emergency savings. It can be hard to build that up, but if you do have an expense like that pop up, you'll be so glad to have that pot of cash.

Alana: This was before I started working at NerdWallet, so I did not know that.

Sean: It's kind of amazing how much better your finances get when you learn how to do things properly.

Alana: When you're younger and you're not hopefully incurring many health-related costs, you can just start banking that money for the future and hang on to it and then use the money to pay for costs when you're older.

Liz: One thing you do want to do is hang on to your receipts for any medical expenses that aren't reimbursed. Because you can use those in the future to justify a tax-free withdrawal. You don't have to withdraw the money in the same year that you incur the expense. When we have unreimbursed medical expenses for this year for example, I could be taking out the money 20 years from now and as long as I have that receipt, I can justify it as a tax-free withdrawal.

Sean: And this also applies for other HSA eligible expenses, things like N-95 masks that I keep coming back to. Right?

Liz: Yeah.

Sean: Because I spent probably $200 on those over the past 12 months and I'm holding on to all of my receipts just for this purpose.

Liz: You have to have incurred the expense after you started the HSA, but once you've opened up that account, you're golden. Some HSAs require you to keep a certain amount in cash like $1,000, and then you can invest the rest. If you think you will need the money to pay for medical expenses though in the near term, you should keep that money in cash. That's just good sense. You don't want to have money that you're going to need in the short term invested in the stock market. Of course, we are not financial or investment advisors. So talk to your own before you make a decision.

Alana: And that's a similar mentality as investing from a regular brokerage account. You don't want to have money that you need for the short term in the market. So it's the same idea just used in a different type of account where you can invest from.

Sean: All right. Well Alana, thank you so much for sharing your insights with us today.

Alana: Thank you for having me

Sean: With that. Let's get on to our takeaway tips and I'll start us off. First up, compare your options. HSAs and FSAs function in similar ways but have key differences. Know which is best for you and your health care needs.

Liz: Next, know their limitations. Both HSAs and FSAs can cover things like copays and medical bills, but typically can't be used to pay your insurance premiums.

Sean: Lastly, make the most of your HSA. If a high-deductible health insurance plan works for you, the triple tax advantage of these accounts makes them a smart option for investing while saving for health care costs.

Liz: And that's all we have with this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your money questions at 901-730- 6373, that's 901-730-NERD. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more information on this episode and remember to subscribe, rate and review us wherever you're getting this podcast.

Sean: And here is our brief disclaimer, thoughtfully crafted by NerdWallet’s legal team. Your questions are answered by knowledgeable and talented financial writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.