What a difference a year makes. Last year I scrambled to spend $1100 remaining in my medical flexible spending account (FSA) by December 31st. This year I spent it all before the end of summer.
One of the tasks this month is to turn in election forms for 2011. The question is how much to have deducted pretax.
Better to Underestimate
Add up your routine and known medical expenses such as regular medications, dental work and exams. This figure should be your cost after insurance. Then one adds in an amount for non-annual expenses like glasses.
Doing this worked for most of the past decade until last year. If I didn’t spend it, it was essentially thrown away. This is the downside of FSAs.
2011 Medical Plans
This year, one dental issue ended up costing a lot out of pocket and I don’t want to repeat it next year. Hearing aids were recommended to my husband a couple of months ago. That expense could easily use the maximum amount my employer allows to be deducted for the FSA.
I’m deducting the maximum and putting extra in my budget for medical expenses. After all, there will be more than just two hearing aids! Maybe I’ll give the apple a day theory a try.
Your FSA
My employer also offers a FSA for child care. My kids were past that age when it was offered although I took advantage of the tax-free reimbursement at a previous job.
If FSAs are offered where you work, do you participate? If not, why?
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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.
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.
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.
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.
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.
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.
Grace, as long as it’s not too many dollars than I agree that it’s fine to not get too worried about it.
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.
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.
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.
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.
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!
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.
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.
My employer is not offering a FSA account this year. I made great use of it last year!
Lisa, that’s awful. Do most employees think this is a negative or did they even care?
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