Flexible Spending Accounts are often Misunderstood and Underutilized

Most of us have heard of Flexible Spending Accounts. Many employers sponsor them. These accounts allow employees to pay out of pocket healthcare expenses with “pre-tax” dollars reducing their taxable income, and therefore their taxes. To accomplish this they must simply elect to have a portion of their paychecks deferred for the purpose of paying for those expenses. The problem is that many employees don’t enroll because of the use it or lose it rule. This rule states that whatever money in your account you do not use is lost at the end of the year. Because of this fear many employees lose out on this wonderful benefit.

All that anyone considering contributing to an FSA needs to do is estimate his or her out-of-pocket expenses. This isn’t really very difficult. Pretty much everyone gets some prescriptions during the year. Each copayment is payable out of an FSA. How often do you or family members go to the doctor? Those copayments are payable as well. As are most dental and vision services. When you think about it, it’s not too difficult to come up with a few hundred dollars in definite expenditures that you can defer pre-tax!

If you are careful the FSA is like a Christmas club, except that the money is available throughout the year.

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