Will a Flexible Spending Account Really Save You Money?

April 9th, 2011 Joel Beattie Leave a comment Go to comments

Flexible Spending Accounts are employer-sponsored benefits that can help employees cover the costs of medical and dependent care expenses. Employees can save quite a bit of money on these particular expenditures if they deposit part of their gross earnings into an FSA.

If you anticipate incurring a lot of medical expenses in the next year, or must care for a dependent, the benefits of a dependent care or health FSA far outweigh the costs. Even so, if you are eligible to hold a flexible spending account, be sure to consider both the advantages and disadvantages to determine whether an FSA is right for you.

Advantages

The money you deduct from your paycheck and deposit into your FSA is never reported to the IRS, thus decreasing your taxable income and increasing what you can spend.
A dependent care FSA allows you to keep working as much as you want because you can afford to pay someone else for child or elder care.
If you use up all of your allotted expenses for the year in one day, you will be reimbursed right away but continue to pay your allocations throughout the year. A big expense at the beginning for the year means you don’t have to pay it off for quite some time.
There is a two-and-a-half-month grace period at the end of the year for you to request reimbursement for expenses that occurred during the previous year.

Disadvantages

FSAs do not roll over into the next year. If you do not spend everything in your account, you lose the money for good.
Flexible spending account rules state that dependent care FSAs must be limited to $5,000 for a household per year.
FSA eligible expenses do not include things such as fitness or weight loss programs (unless medically necessary), prescription drug discount program fees, insurance premiums or education expenses.
You must keep track of all of your FSA eligible expenses and submit receipts in order to be reimbursed.
If you quit your job, you have until your last day of employment to spend everything.

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