Majority of people whose employers offer Flexible Spending Account (FSA) add money into their account on annual basis but only few actually end up using all their available funds in their FSA account. As you can image, there is a high number of activities near the end of the year because people with FSA account go on a spending spree to completely use their money remaining in FSA account. The biggest disadvantage to using an FSA account is that any amount remaining at the end of the year will be lost. It really does not pay to procrastinate or wait until the last minute to spend the money in FSA account or just forget about it.
What is FSA Account?
An FSA account provides people to set aside their pre-taxed money from their paychecks for eligible health related expenses for themselves or for their dependents. By taking advantage of FSA account, you can reduce your income from paying federal and state taxes. Believe it or not, annual savings from FSA account can be significant if managed appropriately. For example, a person paying 25% in taxes who set aside $2000 in FSA account can save $500 in taxes per year. This would be free money you can take advantage of every year if planned ahead.
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Scenarios of FSA Account Use
Many people with FSA account claim that they most often use their fund for dental work and orthodontics like braces. Braces usually cost anywhere from $4000 – $5000 dispersed in two years. By planning ahead and by working payment schedule with your dentist, you can set aside $2000 – $2500 per year into FSA account. Lasik surgery is one of another FSA eligible items. However, you should always find out from your doctor if you can indeed get the eye surgery prior to setting aside big chunk of money into FSA account. Sometime, you cannot be a candidate for Lasik due to reasons like thin corneas or some other factors. The pre-qualifying eye exam for the lasik is free. Other eligible areas covered by FSA account include smoking cessation classes, chiropractic care, acupuncture, fertility treatments and psychiatric care. Over the counter medicine can only be eligible with doctor’s prescription. There are specific flexible spending account rules so make sure to learn them before allocating too much money into it.
How I am Taking Advantage of FSA Account
I have now been using FSA account for past three years. Because of the use it or lose it policy, I always feared about putting too much money into FSA account. I have been adding only $500 per year and so far I have used up every penny of this $500. FSA account always come in handy for eye care and dental related expenses for my family. Also, our kids need prescription drugs for their allergy related symptoms on annual basis, which drains remaining balance. I firmly believe FSA account is worth having every year. Currently, I only save about $100 in taxes, which isn’t a lot of money. But every little bit counts, right?
Do you take advantage of FSA account every year? How much do you add to your FSA account and what expenses do you get reimbursed from your FSA account?