We are going to continue with our discussion on benefits as we have already discussed the Health Savings Account and who should be utilizing it. A different type of saving account for healthcare expenses is the Flexible Spending Account (FSA). I often hear people talking about the FSA and HSA and not completely understanding the differences.
Using an FSA Can Help Save Money
The FSA is a savings account that is intended to be used on certain qualified out of pocket health care expenses. You don’t pay taxes on this money so if you chose to contribute to an FSA the money will be taken out of your gross pay, similar to a traditional 401k, and then your taxes are calculated based off that amount.
You can contribute up to $2,600 per year per employer to your FSA. If your spouse also has this option offered by their employer they can contribute up to $2,600 to an FSA as well. Some employers will contribute a certain amount to your FSA if you chose to participate.
As I discussed in the post about HSA’s the HSA carries over from year to year and is portable. The FSA does not carry over; it is a “use it or lose it” type of account, so it requires you to budget and figure out how much you might spend on health care costs. You must plan on putting the right amount into the account at the beginning of the year.
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There are a couple of instances where the use it or lose rule does not apply and you do not have to use all the money in the FSA within the plan year – if you have a grace period or allowable carry over. Your employer can offer a grace period of up to 2.5 months; if your plan year ended in January you would have until the middle of March to use up your FSA funds. The second option is if your employer allows a carryover; this can be any amount, but they can offer up to $500 of carry over per year to the following year. Your employer can choose to offer either option but is not required to offer them.
You can choose to participate in an FSA or HSA but not both. The FSA is used in conjunction with a traditional health plan, whereas in order to participate in an HSA you must be enrolled in a high deductible plan. Both types of savings plan are used to help offset the cost of health care expenses.
The FSA can be help you save for health care expenses. If you decide to participate in the FSA make sure you budget appropriately so you don’t lose your funds at the end of the plan year and if you know the end of the plan year is coming up and you have some funds left, try to get your health care expenses in before time runs out.
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