In an earlier post, I brought up the awesomeness of Flexible Spending Accounts and displayed my n00bness for not setting one up. I wanted to go into more detail, before I forgot, for those who aren’t as familiar. With the huge medical terms you see while enrolling in certain employer programs, there’s a lot that can make your head spin. It took me about 2 years to figure out what a deductible was. With that said, let’s try a formal, easy-to-read explanation:
What is a Flexible Spending Account?
It’s a tax-advantaged account you may set up through your employer. The tax-advantage simply means you’ll be using pre-tax dollars to pay for your “qualified” expenses.
What are “qualified” expenses?
It depends if we’re talking about a Flexible Spending Account(FSA) or a Health Savings Account (HSA). Most commonly, these plans are used to pay for out-of-pocket medical expenses; but may also be used for dependent care expenses, as well as parking and transportation costs.
Obvious: SAVING! You’re not paying taxes on this money you earn.
Not so Obvious: BUDGETING! You’re paying for your expenses insmall increments (Total Cost/26 if you’re paid bi-weekly).
Not so Obvious: SNEAKY! If you pay for your qualified expenses early in theyear, and then leave the company…you typically won’t have to pay for the rest of the amount owed. I did not tell you this 😉
“Is it true that if you don’t use it, you lose it?” – 40 Year Old Virgin
If for some reason you don’t use your allotted money in the coverage period, there’s a good chance you’re not getting it back. So a bit of advice: if you’re going to be fired, make sure it’s not in Q1.
Long story short: If you know you’re going to have a major surgery that insurance won’t cover, this could save you thousands of dollars. Sidenote: Why do people say “long story short” only after they have already bored you with their long story?