I am a big proponent of flexible spending accounts. It is (in my opinion) the most underutilized employee benefit available (at bigger companies).
If you suffer from clickalinkophobia, here’s a summary in plain English:
We all have medical expenses come up each year. Some expenses are foreseeable (prescriptions, co-pay for regular Doctor visits, etc.) while others are unforeseeable (broken bones, illness, etc.). For those expenses that we can expect, why not pay for them with PRE-TAX dollars rather than POST-TAX? Flexible Spending Accounts allows us to do just that. Assuming your employer offers a flexible spending account, it’s an extremely easy way to earn a 25-28% discount (equal to your tax rate).
But, enough with the review…
What if you were savvy enough to set up a flexible spending account in 2013, but you weren’t able to spend all of your money?
Well, one of the risks associated with said account is the “Use it or Lose it” rule. This means that, typically, you will lose any money that goes unused during the year. If you contribute $1000 in January and only use $800 come December, you’re out that $200.
This is why it’s so important to PLAN AHEAD. Estimate how often you expect to visit the doctor. Estimate how much each visit will cost. Estimate how many times you will need to refill a prescription. It may seem like a tedious task, but it should only take 20 minutes max (Clicking this link will provide 27 seconds of entertainment).
There are 2 things to clarify with the “Use it or Lose it” rule:
1. Flexible spending account providers will issue a debit card at the beginning of the year. This is what you will use to make your medical payments throughout the year. But, we don’t always keep these cards in our wallet at all times. We are human. We are forgetful. It’s okay.
Most providers allow for reimbursement as well. So, if the above scenario describes you, fear not. My reimbursement window stretches 90 days into 2014. For example, on December 31st I realized that I had $100 left in my flexible spending account. Rather than kissing this money goodbye, I thought back to all of the medical-type of expenses I incurred during the year that might be eligible. Lo and behold (one of the weirdest idioms ever), I remembered a root canal (ouch) that I covered out of pocket (with the help of insurance).
If you were forgetful during the year and you mistakenly left a balance in your account, log onto your providers website and file a claim for reimbursement.
2. New federal guidelines allow for employers to allow employees to carryover unused dollars up to $500. And the employee can still contribute up to $2500 the following year. You can read more about that at the Society for Human Resource Management.
Readers, did you set up a flexible spending account in 2013? If so, did you have any funds “left over”?