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Should I sign up for a Flexible Spending Account?

Should I sign up for a Flexible Spending Account?

For many working Americans, open enrollment season is coming up soon. The open enrollment period is when you have the opportunity to evaluate and sign up for insurance and other benefits, through your employer or through an exchange. Most companies offer a benefits plan which may include health, dental, life and vision insurance; some businesses also offer other options like commuter benefit accounts or consumer directed healthcare accounts. Depending on what benefits your company offers, you may be wondering – should I sign up for a Flexible Spending Account?

Should I sign up for a Flexible Spending Account?

What is a Flexible Spending Account?

A healthcare Flexible Spending Account (FSA) is an employer-sponsored benefits account. Through an FSA, employees set aside money before taxes to pay for qualified out-of-pocket healthcare expenses. There is no health insurance requirement to open an FSA, like there is with a Health Savings Account (HSA).

How does an FSA work?

During open enrollment, you choose how much money to put aside annually, up to the annual limit; currently the limit is $2,700. When the plan year begins (usually January 1), the money is deducted from your paycheck each pay period in equal amounts throughout the year.

On day one of the plan year, you can use your FSA dollars to pay for qualified healthcare expenses for yourself and your dependents. In fact, you can use your entire annual election on the first day, even though the money hasn’t built up in the account yet. The deductions will continue to come out of your check, but the available balance will be zero.

What expenses are covered by my FSA?

The list of eligible expenses includes:

  • Co-pays and deductibles
  • Dental exams and procedures, such as fillings, crowns, dentures, etc.
  • Eye exams and eye wear, including prescription glasses, sunglasses, and contacts
  • Prescription medications
  • Lab fees
  • Hearing aids and related expenses
  • Diabetic testing supplies and insulin
  • Smoking cessation treatments

Here are some examples of non-eligible expenses:

  • Cosmetic procedures
  • Insurance premiums
  • Funeral expenses
  • Over-the-counter medications without a prescription
  • Medicines and pharmaceuticals from another country
  • Future medical care
  • Vitamins

How much money should I set aside for my FSA?

There is no simple answer that applies to every person. The amount you should set aside in your FSA depends on your healthcare needs; some people may need to put more in than others.

In order to figure out how much you need for next year, consider the following:

  • You and your family members’ overall health
  • Planned procedures in the next year (e.g., getting braces, surgeries, new baby, etc.)
  • Prescription costs
  • Planned visits to the doctor

What does Use it or Lose it, Carryover, and Grace Period mean?

These terms refer to what happens at the end of the plan year if you have leftover FSA money.

  • Use it or lose it”: You forfeit any money that is not spent before the end of the year
  • Carryover: You can carry over up to $500 in unspent funds to the next year (amount may vary by employer)
  • Grace period: You have up to 2.5 months after the plan year ends to use the previous year’s FSA funds

Are FSAs convenient?

There are a couple of ways to access your FSA money, depending on your employer’s plan.

If your plan offers an FSA debit card, you can use it at pharmacies, doctors’ offices, grocery stores, and more. If you don’t have an FSA card, you’ll have to pay out-of-pocket, then file a reimbursement claim with your benefits administrator.

Be sure to keep all of your receipts and documentation. Even if you have a debit card, your administrator may request the following information:

  • Who: Who was the purchase for?
  • What: What item or service was purchased?
  • When: What month/day/year was the purchase made?
  • Where: Where was the item or service purchased?
  • How much: How much did the item or service cost? This is the amount you paid, after insurance covered its portion.

Should I sign up for a Flexible Spending Account?

Is a Flexible Spending Account right for you? An FSA is perfect for people who want to reduce their taxes (between 30-40 percent on set aside funds) while setting aside money for healthcare expenses. Be sure to consider how much you plan on spending next year and how your employer’s plan is set up. Even if you don’t have a lot of medical expenses, you may want to put aside an “emergency fund.” The choice is up to you.