With November already here, I thought I would just remind everyone to check their Flexible Spending Account balance. Having a FSA can be a great tax advantage if used properly. For those unfamiliar with them, Flexible Spending Accounts allow you take a portion of your pre-taxed earnings and set them aside for qualified expenses.
Many people have used them as a way to save money on medical expenses. FSAs have a downside of expiring at the end of the year, meaning if you don’t use it, you’ll lose it.
Please be aware that there have been a number of changes to what can be covered with your FSA. According to the IRS’ Internal Revenue Service:
The Affordable Care Act, enacted in March, established a new uniform standard that, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained.
The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.
That means that you should start calculating carefully what you’ll most likely need for next year so you won’t have some of your money wasted. For our family contacts and eyeglasses are the biggest expenses we have. Otherwise we tend to have relatively small expenses. For next year I think we’ll budget for $500 for the year.
Thoughts on Flexible Spending Accounts
I’d love to hear from you about how you handle your FSAs. How many of you took advantage of your flexible spending account this year? How do you determine what is the right amount to set aside for the account?
Photo Credit: 401K