The Pros and Cons of Flexible Spending Accounts

When you're thinking about ways to manage your medical costs, one option that many people fail to consider is flexible spending accounts. Many employers offer flexible spending accounts to offset the burden of un-reimbursed medical expenses, including co-pays and treatments that aren't covered by your medical insurance. However, flexible spending accounts can have a downside, so it's important to evaluate your position before you sign up for a flexible spending account.

Benefits of a flexible spending account.
Flexible spending accounts have a couple of big benefits, but one of the most important features for many people is the fact that the money you contribute to a flexible spending account is tax-free. This makes a flexible spending account a great choice for reimbursement for non-covered medical expenses, such as co-pays, dental or vision care, or even prescription or over-the-counter medications. Instead of paying this money out-of-pocket with money that's already been taxed, you can be reimbursed for these expenses with pre-taxable income. Additionally, saving for medical expenses can make it easier to come up with the cash for an expensive treatment, instead of being stuck with a big bill and no cash to cover it.

Problems with flexible spending accounts.
The biggest problem with a flexible spending account is that it must be used by the end of the calendar year. Some companies take advantage of a two-and-a-half month grace period that the IRS has implemented for end-of-year expenses, while others elect to cut the spending off at midnight on December 31. If you don't use the money in your flexible spending account by the deadline, you lose it. This use-it-or-lose-it mentality can make flexible spending accounts a gamble.

Flexible spending accounts can also be detrimental when used for child care. Some flexible spending accounts include child care coverage, and many parents opt to use this tax-sheltered option rather than paying for child care with post-tax dollars. However, if you use your flexible spending account for child care, you don't qualify for the child care credit on your annual tax return. If you're a low-income family, the annual child care tax credit may be more valuable than the tax shelter presented by the flexible spending account.

How to effectively use a flexible spending account.
If you opt to use a flexible spending account, evaluate your expenses before determining a deposit amount. If you don't use the money in the account by the end of the year, you lose it, so many people under-pay the flexible spending account in the first year just to determine exactly how much they need. Monitor your medical expenses for a few months, and base your flexible spending account on actual expenses; not how much you guess you'll need. If you do have money left over at the end of the year, stock up on useful medical supplies covered by the flexible spending account, such as over-the-counter medications and eye care products.

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Flexible spending accounts (FSAs) allow you to set aside pre-tax income now in order to spend it later on anything ranging from ointments to operations. To help you make a well-informed decision about flexible spending accounts (FSAs), this guide explains how they work, describes the different types available, and provides an overview of the rules you'll need to keep in mind when managing a flexible spending account (FSA).

The primary benefit of a flexible spending plan is that if you use it you realize a substantial tax benefit. Along those lines, the key drawback is that if you don't use the money within a certain coverage period, you will likely lose it.

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Associated Content writer Kendra Dalstrom mentions in her article about rising healthcare and the many problems that we cause to help the state of healthcare America. She mentioned Americans have helped healthcare costs to skyrocket within the last ten years, but realistically it has been rising for more than a decade.

A health flexible spending arrangement (FSA) is an account that is funded by voluntary salary deductions agreed upon with your employer. When you sign up for a health care flexible spending account, you are agreeing to set aside a certain amount of your salary or wages to pay your medical and dental expenses that are not covered by insurance.

What is a Flexible Spending Account? A Flexible Spending Account (FSA) is a great option for reducing your taxes as well as setting aside funds to cover medical and dependent care expenses. With this account, you contribute money from your paycheck each period, before taxes, and you can use that money to pay for certain health care costs.

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