FSA's...good but not as dope as the HSA

The Flexible Spending Account (FSA) is a savings account provided by employers, which allows employees to save money – up to $2,700 in 2019 – for qualifying medical expenses (QME) and do it with pre-tax dollars. Normally, people with more conventional health benefits (i.e. not high deductible health plans) can have FSAs. By putting money into an FSA, you get to use pre-tax dollars when you pay for healthcare and you get to avoid some payroll taxes. The rub with FSAs is you have to spend all of the money you save in the plan year (12 months). Some employers will give you a grace period after year-end and/or allow you to rollover up to $500, but you should plan to use all of your FSA contributions in year. 

This can be tricky. My family doesn’t really have a lot of recurring medical expenses. Rather, we pay for healthcare when our kids get sick or I do something stupid as a weekend warrior (sidebar - it sucks getting older). So...you really need to plan out what you think you will spend and do a good job spending all of the dollars you save in the FSA. Otherwise, you risk saving a bunch of dough and losing it when your balance resets to $0 for the next year. 

A key element about FSAs that most people miss is that there are a lot of items that are qualifying medical expenses, such as: 

  • Medicines prescribed by a doctor (even OTC meds)

  • Breast pumps

  • Pregnancy tests

  • Bandages

  • Crutches

  • Acupuncture

  • Chiropractors

  • Dental work

  • Vision expenses like glasses and contacts

Double check what you are buying. There’s a good chance that you are leaving money on the table if you are saving money in an FSA. 

Note - There are other types of FSAs that can be used for other purposes beyond healthcare such as child care and commuting. Check out Nerd Wallet for more info on these types of FSAs.