How to Get the Most Out of Your Flexible Spending Account
Written by: Andrew Hall
Flexible Spending Accounts (FSA) are a great way to reduce your taxable income and simultaneously set money aside for qualified healthcare expenses.
For 2022, the maximum amount the IRS allows you to contribute to your healthcare FSA is $2,850.
To make sure you’re not putting too much or too little into your FSA, do your best to project medical expenses for the upcoming plan year.
You can use funds to pay for visits to the dentist or eye doctor or prescription drugs.
Flexible Spending Accounts (FSAs) is a type of medical savings account and are great options for millions of Americans every year. An FSA allows you to reduce your taxable income (giving you a larger paycheck) by contributing tax-free dollars into an account that you can use to pay for qualified medical, dental and vision expenses. Using your FSA to pay for these services reduces your overall out-of-pocket costs. FSAs are “front-loaded,” meaning that your funds are in your account and available on the first day of your benefit plan year.
Your FSA savings grow from regular payroll deductions and, typically, your employer will give you a debit card that you can use to access your FSA funds whenever you need them.
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For 2022, the maximum amount the IRS allows you to contribute to your healthcare FSA is $2,850. You can choose to add any amount up to this limit. Your FSA account funds reset each year. The IRS allows you to roll over a maximum of $570 of unused funds to your next year’s FSA balance.
For Example, Joe and Susan both have money left in their FSA accounts and the benefit year ends in 10 days, what should they do?
- Joe has $750 in his FSA. He can spend all $750 on FSA-eligible health items or services or spend $180 and roll over $570 to next year. What happens if Joe does nothing? $570 will roll over for the next year, and he will lose $180 at the end of 10 days.
- Susan has $500 in her FSA. She can spend some or all of the $500 on FSA-eligible health items or services, or she can roll over the $500 to next year.
If you’re not sure how much money you want to contribute to your FSA, do your best to list any definite healthcare expenses for the plan year.
- Are you planning on just going to the doctor for regular check-ups and maybe a couple of yearly sick visits?
- Are you having any procedure, major dental work, or having a baby?
- Do you need a new pair of glasses or contacts?
- Do you take expensive medication?
The way you answer these questions will help inform how much money you should set aside in your FSA. Generally speaking, if you’re not planning on using your health plan much during the plan year, consider putting aside a smaller amount so you don’t have more than $570 left over at the end of the year. If you’re planning on using your health insurance a lot in 2022 or foresee a lot of medical expenses for you or your covered dependents, you can always add up to the $2,850 maximum.
Remember, when you’re doing your math, make sure you know if your employer offers the $570 rollover provision or not.
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So it’s the end of the year, and you have a lot more left in your FSA than you planned. Maybe you forgot you had it, maybe you ended up having a super healthy year, or other circumstances changed your plans. Whatever the case may be, below are a few ideas for ways to utilize your funds, so you don’t lose them.
- Squeeze in a quick office visit. An FSA generally covers dental exams and procedures, eye exams, glasses, and contacts.
- Bulk-order your prescription drugs. If you know you’re going to need a specific prescription – or a few – for a definite amount of time, order more than one month’s supply to use up those funds.
- Think outside the box. Going on a warm-weather vacation over the holidays? Sunscreen and prescription sunglasses are covered by FSAs. Other items, like contact lens solution and first aid kits, are also covered.
- Search online. Popular shopping websites like Drugstore.com and Amazon.com have dedicated searches for FSA-covered products that you can purchase.
- Check with your Human Resources department. Before you go crazy purchasing items covered by your FSA, confirm the amount you’re allowed to carry over into next year and any grace period for spending.