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. As you can image, there is a high number of activities near the end of the year because people with FSA go on a spending spree to completely use their money in FSA. The biggest disadvantage to using an FSA 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 or just forget about it.
An FSA 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, you can reduce your income from paying federal and state taxes. Believe it or not, annual savings from FSA can be significant if managed appropriately. For example, a person paying 25% in taxes who set aside $2000 in FSA can save $500 in taxes per year. This would be free money you can take advantage of every year if planned ahead.
USM Related Post: Taking Advantage of Flexible Spending Account in 2014
Scenarios of FSA Use
Many people with FSA 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. Lasik surgery is another area. 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. 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 include smoking cessation classes, chiropractic care, acupuncture, fertility treatments and psychiatric care. Over the counter medicine can only be eligible with doctor’s prescription.
How I am Taking Advantage of FSA
I have now been using FSA accounts for past three years. Because of the use it or lose it policy, I always feared about putting too much money into FSA. I have been adding only $500 per year and so far I have used up every penny of this $500. FSA 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 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 every year? How much do you add to your FSA and what expenses do you get reimbursed from your FSA?