Think it’s too early to start planning your budget for your flexible spending account? Think again! 2018 is just around the corner, and that makes now the perfect time to start thinking about the best ways to budget and spend your employer’s health flexible spending arrangement (FSA). In fact, in order to be able to contribute to a 2018 FSA, employees need to have already figured out how much to deduct from each paycheck before the plan year starts. That gives most of us about a month to figure out how much to set aside for our FSAs each month in 2018!
Planning Your Flexible Spending Deductions
Trying to find the sweet spot is important when deciding how much to hold from your pay. The IRS allows a maximum contribution of $2650 pre-tax to stash in an FSA. That means you can set aside $2650 free from Federal income taxes, Medicare taxes or Social Security taxes. If you want to set aside the entire $2650, you should set aside around $220 per month.
Keep in mind that it does no good to set aside money for an FSA if it won’t be used. If you anticipate medical expenses for 2018, then it might be wise to set aside the entire $220 per month. However, if you generally don’t need a lot of medical oversight then perhaps a lesser amount is more reasonable to set aside tax-free. This is where the planning comes in.
How Can FSA funds be Used?
Money in an FSA can be used for qualifying medical expenses that aren’t covered by insurance. Co-pays, deductibles, and a variety of medical products and can be purchased through an FSA. This includes dental and vision care, eyeglasses, and hearing aids. For more information on what expenses qualify, contact your employer.
Use it or Lose it
The downside (and why carefully planning the monthly allotment for your FSA is so important) is that funds that aren’t used are lost. So if you set aside the entire $2650 tax-free for 2018 but only use $200, you essentially lose $2450. Some employers allow either a carryover or a grace period to use FSA funds. Carryover plans allow employees to roll up to $500 in unspent FSA money to the current plan year. The grace period allows an additional 2.5 months for employees to spend their FSA funds. It is important to note that employers aren’t required to offer either of these options. Those who do can only offer one or the other but not both to eligible employees. Be sure to check with your employer.
So. After a lot of talking here let’s sum up, shall we? FSA is a Flexible Spending Allowance. Some employers offer this type of account as a tax-free benefit for helping with medical costs. But some don’t. It’s up to the employee to decide how much cash to stash per month in an FSA. Too much means money that could have been spent in other ways is off the table. Too little and you may not get the best benefit of a great tax-free deduction. Plus a great way to save for expensive medical bills. Either one. Check out how much you spend on average per year. It may be worth saving a few dollars per month in an FSA. The tax benefit alone makes it a no-brainer!