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Edit: See jlmorton's correction below. Creation was indeed accidental. Leaving my comment unchanged. When 401k-s originally started, it was considered ground-b
by harikb 7y ago
Edit: See jlmorton's correction below. Creation was indeed accidental. Leaving my comment unchanged.
When 401k-s originally started, it was considered ground-breaking in that it was a way for employers to use their purchasing power (or choosing power) to get lower cost management of funds. It was envisioned as a great thing for employees and employers.
But we all know that is now how new laws are created. A bunch of lobbyists from financial sector lobbied to create this new instrument, which in turn directs more money to them.
Any instrument where the employee doesn't get to control the management of the money is bad for the employee.
There is a similar situation with FSA (Flexible Spending Account). That is day light robbery. Employee has to guestimate how much medical expenses they have in the year. Estimate too little and you lose the tax savings. Estimate too much and the FSA management organization keeps the unspent money. What was originally deducted from your paycheck doesn't come back to you with a 10% additional penalty. No, the person loses 100%. FSA says the money goes to the employer to offset the management costs. This is like the real-estate sales person claiming the seller is paying them.
- Ididntdothis 7y agoI agree about FSA. It’s stupid in every conceivable way. But don’t they roll over now? At least to some degree.
- lotsofpulp 7y agoThey added 2.5 months to be able to use it, if the employer wants employees to be able to. Still useless for the same reasons though. https://www.irs.gov/newsroom/irs-plan-now-to-use-health-flexible-spending-arrangements-in-2019 https://www.irs.gov/newsroom/irs-plan-now-to-use-health-flex...
- nimajneb 7y agoAs far as I know it's Health Savings Account (HSA) in a high-deductible health insurance plan that rolls over, not a FSA.
- pnutjam 7y agoNo, your probably thinking of HSA's or the fact that you have something like 30 or 60 days into the new year to use the old one.
- pnutjam 7y agoFSA is great if you plan to change employers, there is no clawback if you empty the account in January and change employers in February. I'm not sure why this was never considered, but it's one of the few places an employee can benefit.
- lotsofpulp 7y agoThere is absolutely no benefit of an FSA over an HSA, other than to pad the coffers of whoever gets the leftover FSA funds if the participant can't accurately forecast their spending. FSA's simply should not exist.
- pnutjam 7y agoTrue, but they are either or and a High deductible plan is a disaster for many people.
- lotsofpulp 7y agoYes, I forgot about that. But generally, since the expected cost of one's healthcare remains the same regardless of what kind of insurance plan they choose, the difference in premiums for a high deductible and low deductible plan is just the present value of the expected additional costs the insurance company has to pay because of the low deductible. In other words, you can pay more via a higher monthly premium now, and pay less when you pay for the healthcare. Or pay less for the premium now, and pay more when you pay for the healthcare. Otherwise, the insurance company wouldn't be in business for long. The difference is who gets to keep the investment earnings from the savings kept until you need healthcare.
- pnutjam 7y agoFSA gives you the entire year's contribution up front, HSA does not.
- throwawayhhakdl 7y agoFSA’s blow my mind. They’re pushed on young people who don’t need it. The loss is NOT MADE CLEAR. And it hurts because a lot of people’s level 2 understanding of personal finance is max out your tax advantaged savings accounts. FSA’s should be illegal. The advantages they bring to some (large!) don’t justify the theft from others.