What is a Flexible Spending Account?
Also known as a flexible spending arrangement, like FSA, depending on the extent of your health costs, can help you save lots of money on care. FSA can be used for medical expenses, dental care, and vision care.
The amount you decide to contribute to the account for the year gets deducted from your salary before income taxes, which reduces your taxable income, saving you money on taxes. Based on your benefit plan, your employer may contribute to your FSA also.
Note that, you will either have a debit card to pay for medical expenses as you go, or you’ll have to submit receipts and documentation for reimbursement. Your FSA can be used for your own medical expenses, expenses incurred by your spouse or any decedents claimed on your taxes. FSA funds can also be used for any adult children on your health plan that will be younger on December 31.
How Good is FSA?
According to some experts, FSA is useful for people with any level of health costs. It is adjudged to the simplest and easiest way of giving yourself a raise according to Kevin Haney, owner of A.S.K. Benefit Solutions, a New York agency that specializes in the sale of voluntary employee benefit programs.
As stipulated by some experts, except you have an ongoing medical condition, FSA may not be the best use of your paycheck. Rather, it is recommended that you take full advantage of something like retirement savings. If you are healthy, an FSA may not be worth the effort. Also if you contribute more than you’ll need to spend on medical care this year, an FSA can backfire: Any unused funds will disappear.
Thus, to decide if an FSA is right for you, take stock of your health. In case you have any ongoing or expected medical needs you might need to pay for in the upcoming year, as FSA is a great use of your money.
How to use an FSA
You can use your FSA for copayments, coinsurance, deductibles, prescription medications, as well as dental and vision care, as stated by the IRS.
You can also use FSA for medical equipment and treatments like;
- Breast pumps
- Medicines prescribed by a doctor
- Blood sugar testing supplies
- Birth control
- Smoking cessation programs
- Psychological treatment
- Pregnancy test
FSA cannot be used to pay for gym memberships, over-the-counter drugs without prescription, vitamins or cosmetic procedures. In some cases, like smoking cessation or diet counseling, you may require a doctor’s referral to prove that you really need the covered treatment.
Determine your Annual Contribution
After you get enrolled, you have to decide the amount you plan to allocate to your FSA.
If this is your first job, then you have to make some predictions. Carefully review your employer-offered health care plan to learn about the cost of copays. In case you have any underlying conditions, like asthma or diabetes, factor in how much you’ll spend on your medications. Then consider your other needs also.
One important fact to take note of is that FSAs are “use-or-lose”. What this means is that the amount in your account will expire at the end of the year. Be it as it may, employers have two options to prevent employees from losing any funds remaining at the end of the year; Carryover funds or apply a grace period. With the first option, you can carry over up to $500 to the next year.
The second gives you the option of a grace period for 2.5 months to spend any leftover funds. Note that, employers can offer either of these options but not both.
On a final note, it is important to note that when it comes to FSA, there’s no one-size-fits-all. Thus to decide which is best for you, forecast upcoming health and related expenses for the year and get acquainted with the FSA plan on offer. Thoroughly, read your company’s plan to know what you are getting into.