N.W.Journey December 17, 2010 at 7:08 am

I definitely participate with FSA because of the tax-free money. It is a sure way to save money. I agree that under-estimating is your best bet, especially with the laws changing so we won’t be able to use FSA money on cough syrup on the like next year.

Kay Lynn December 19, 2010 at 2:36 pm

N.W. Journey, I guess employers have a lot of latitude in how they want to offer FSA benefits. I never could claim over the counter meds so won’t miss it.

JoeTaxpayer December 17, 2010 at 7:48 am

I just discussed FSA/ DCA on the TurboTax Blog. http://tinyurl.com/2a5x45y
A couple comments, the FSA is different from the Dependent Care Account (DCA). Getting this money ‘off the top’ is a great benefit and is available regardless of one’s income level. The DCA is easier to plan for I suppose, one would know soon after arranging child care how much it will cost.
We use the FSA and usually go over. The one time we were about to be under, I told Jane it was time to get new glasses.
There are very few people who are so healthy they won’t benefit, for the rest of us, it’s time to run the numbers.

Kay Lynn December 19, 2010 at 2:37 pm

Joe, thanks for the clarification that DCA is different than FSA. My employer has both on the same form. I made bad conclusion from that.

Grace December 17, 2010 at 8:08 am

I love, love, love FSA’s. My employer has them for health care, childcare, and transportation expenses (both for an annual transit pass and for parking).

Some years I leave some dollars on the table–given that these are pre-tax dollars that don’t count against my taxable income, the actual ‘loss’ to me is much less than the amount of dollars left in the account. So I don’t worry about spending every penny in the FSA.

JoeTaxpayer December 17, 2010 at 8:28 am

For 2010 – FSA allowed over the counter medicine (i.e. no prescription) so things like aspirin, cough medicine, Band-aids, Ben Gay, etc.
In theory, the items must be for personal use. In reality, if you can’t spend the last $200, a local shelter will take these kind of items.

Kay Lynn December 19, 2010 at 2:38 pm

Grace, as long as it’s not too many dollars than I agree that it’s fine to not get too worried about it.

Squirrelers December 17, 2010 at 12:52 pm

Definitely a good idea to take advantage of FSA. Just be careful not to overestimate expenditures, or you could be risking leaving money on the table.

Personally, I tend to estimate a bit conseratively in my allocations, in order to A) avoid leaving funds unused, and B) make sure that I get the pre-tax advantage for those expenses that I can safely predict will occur. All in all, it’s a good move to participate in these, while doing so intelligently.

Kay Lynn December 19, 2010 at 2:42 pm

Squirrelers, sounds like a good strategy. I was too conservative this year but do agree it’s better than what I went through stressing over spending a large chunk at the end.

Buck December 17, 2010 at 4:56 pm

I used FSA’s before, but always worry about overestimating. Thanks for your guidelines. 🙂 I got around that this year by using a health savings account. I really hate leaving money on the table or scrambling to use it and not lose it.

Kay Lynn December 19, 2010 at 2:43 pm

Buck, HSA’s are not offered as an option where I work and I’m not sure how would feel about it if offered. If that happens, I’ll definitely pick your brain.

Financial Samurai December 18, 2010 at 7:22 am

Better to underestimate indeed. I’m going 0 next year, why? The tax savings is too little for me to bother. I’ll do it if my expenses are more than $2,000 a year, but below that… I’m not doing it. I want my free time back!

JoeTaxpayer December 18, 2010 at 7:46 am

Zero? Last year we put in $4000 and spent it all by October. I’m happy for you that your doctor bills are that small, that it’s worth nothing to you. You have kids? They have braces? Well, I’d like to thank you and the readers here for subsidizing my daughter’s braces. (That’s how many think of any of my own money I get to keep before having it taxed, right?)
So I was to the good over $1100 in saved tax due to the FSA.
All our doctor bills funnel through insurance and the FSA reimbursement is a zero paperwork item. We state the withholding percent in October, money withheld, money reimbursed via direct deposit. If the process were 100% manual, I’d submit 4 times per year. I like my free time, but I like $1100. Pretty easy money for me.

Kay Lynn December 19, 2010 at 2:45 pm

Sam, it really doesn’t take much time to figure it out and fill out a form. We’re getting electronic cards that will function like debit cards for 2011 so no claim forms to fill out.

Lisa @ Cents To Save December 19, 2010 at 2:42 am

My employer is not offering a FSA account this year. I made great use of it last year!

Kay Lynn December 19, 2010 at 2:46 pm

Lisa, that’s awful. Do most employees think this is a negative or did they even care?

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