EBONY HAZELEGER: Is Flexible Spending Account right for you?

The importance of budgeting, financial planning, investing, and saving are irrefutably beneficial in keeping your money on the right track. But far too often, we overlook employer-provided benefits that can improve our financial situation. You can never predict when you’ll get sick or what medical bills will arise. But by being better prepared to handle health care costs like co-pays and deductibles, this can help you save a lot of money on health care, which is great news for your bank account.

What is an FSA?

Flexible spending accounts (FSA) are pre-tax dollars that allow you to pay for medical expenses, for you, your spouse, children under 27, and other dependents. You can use the account to spend for things such as co-payments for doctor visits, teeth cleaning, prescription drugs or prescription co-pays, medical equipment, etc. An FSA reduces your tax burden and can ultimately increase your take-home pay. Why? Because pre-tax dollars stretch further than after-tax dollars. You’re putting more money in your pocket in the long run.

Unlike an HSA (Health Spending Account), an FSA does not require you to have a high-deductible health plan. Self-employed individuals cannot open an account. Plus, you have complete access to your annual funding at any time, regardless if you have contributed that amount or not.

How much to contribute to your FSA

The maximum amount that you can contribute to an FSA is $2,700, which is the new 2019 limit for the year. Even though you cannot figure out how much to contribute to your FSA with high accuracy, a good place to start is to factor in emergencies and unexpected costs and to make a list of expected out-of-pocket medical expenses for you and your dependents for the next year. Out-of-pocket expenses may include doctor appointments, urgent care, emergency room visits, prescription costs, and any planned surgeries or procedures. Also, if you always exceed your deductible, include the deductible amount in your calculation.

Cons of having an FSA

There are some drawbacks to consider in deciding whether or not an FSA is beneficial to you or for your family. The amount that you elect to contribute at the beginning of your annual plan cannot be changed until the next year, unless you experience a qualifying life event. You can also lose your FSA if you lose your job or leave your employer. You must also sign up for an FSA during your employer’s open enrollment period; and if you do not use your FSA benefits before the year-end deadline, you can lose it. Experts also say that if you have an ongoing medical condition, an FSA may not be the best use for your paycheck. Read your company’s plan to know what you’re getting into. Also, take time to learn all the features of the plan and seek help from your Human Resources department.

The good news is that there are other tax-advantage plans available for you or your family that will allow you to build up your emergency funds tax-deferred and to withdraw funds tax-free that eliminates the “use it or lose it” rule. To find out more on how to gain a tax-free saving vehicle, give my office a call today.