As December arrives, many people start reviewing their financial and health benefit options. One important year-end consideration is your Flexible Spending Account, or FSA. Understanding how FSAs work, and what to do with unused funds, can help you make the most of your benefits and avoid losing valuable dollars.
What Is an FSA?
A Flexible Spending Account (FSA) is a special, employer-sponsored savings account designed to help you cover certain out-of-pocket healthcare costs. When you sign up for an FSA, you choose an annual amount to contribute, and that money comes out of your paycheck before taxes. This reduces your taxable income, which can result in some tax savings.
FSAs can be used to pay for a wide variety of qualified health expenses, such as copays, prescription medications, medical supplies, dental and vision care, and some over-the-counter items. Check your plan’s guidelines or talk to your benefits administrator for a complete list.
The “Use It or Lose It” Rule
One of the most important features of an FSA is the “use it or lose it” rule. In most cases, any money left in your FSA at the end of the plan year is forfeited. This means you lose that money if you do not spend it on eligible expenses before your plan’s deadline.
Many FSA plans have deadlines at the end of the calendar year, but some employers offer a short grace period or allow you to carry over up to a small set amount into the next year. The exact policy depends on your employer’s plan, so it’s important to review your benefits or check with your HR department.
What to Do in December
As year-end approaches:
- Check Your Balance: Log in to your FSA account or contact your plan administrator to see how much you have remaining.
- Review Eligible Expenses: Review what health care items and services qualify, such as upcoming doctor visits, prescription refills, glasses, contacts, or certain over-the-counter products.
- Schedule Appointments and Purchases: Consider using FSA funds for outstanding medical appointments, replacing prescription eyewear, or stocking up on eligible supplies.
- Know Your Deadlines: Note your plan’s final date for spending your FSA funds and submit any receipts or claims before the cut-off.
FSA Overview
FSAs offer valuable tax advantages for healthcare spending but require careful attention to deadlines. Unused money may be lost if not spent in time (“use it or lose it”). Take time this December to check your balance, review qualified expenses, and make intentional decisions on remaining funds.
If you’re interested in learning more about flexible spending accounts and health savings accounts, check out this article: “What is an HSA? Understanding Health Savings Accounts and How They Differ From FSAs.”
If you have questions about FSAs or how tax-advantaged accounts can support your year-end strategies, contact your benefits provider or consult with a financial advisor. Schedule a free, no-obligation 15-minute consultation with our wealth advisors at Gregory Ricks & Associates by phone or Zoom today by clicking “Schedule A Visit” below.
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