Flexible Spending Accounts, otherwise known as FSAs, are programs that assist you in covering your medical expenses – everything from co-pays to Band-Aids and everything in between.
Many people confuse Flex Spending Accounts and Health Savings Accounts (HSA) because they are extremely similar additions. Let’s take a look at the benefits and disadvantages of Flex Spending Accounts.
When the Flex Spending Account was introduced, it was a revolutionary way to pay for healthcare. A set amount for the account is decided upon before the start of the term, you have the full amount at your fingertips at the beginning of the qualified period and you “repay” that amount from your check throughout the year.
One of the biggest benefits of the FSA is that upon start of the program, the entire amount you allotted is available. For instance, let’s say you decided to allot $1,500 to your FSA for the year. As of January 1, you would have access to the full amount. The reason health insurance companies allow this is because they know you will pay it back throughout the year.
Another advantage of Flex Spending Accounts is many of them have a lax policy when it comes to what the funds can be used for. Many companies offer the option to pay policy co-payments and also to purchase necessary medical and health items at the store. Items like Band-Aids, cold and sinus medicine, and ace wraps are all items included in the FSA program. To get an idea, take a look at a store receipt and any health items marked with an ‘F’ off to the side, qualify for FSA funding.
The money put into the FSA is based on pre-tax funds. This means you actually save more since the money going in does not get taxed and if pulled out with qualifying purchases, the money is still not taxed. Another thing to look at when creating your FSA is if you are only within a few thousand dollars of a lower tax bracket, since these funds can be put in your FSA and lower your taxable income.
With all of the good there has to be some bad. The Flex Spending Account comes with one major drawback; “use it or lose it.” The way the FSA is set up, it gives each participant the opportunity to use their entire amount allotted for the year, otherwise, it will be recouped by the FSA. Of course, the policy allows you the opportunity to use the previous year’s funds until March of the following year, just in case you did not realize there were funds left.
Typically, your flex spending account will be tied to a charge card, dedicated only for the FSA. This card can be used at doctors’ offices for the co-pay or at stores for medical and prescription payment. The other drawback to the FSA is that receipts for questionable purchases could be asked for at any time. If these receipts are not provided, you will have to pay the amount back to the Flex Spending Account.
Overall the Flex Spending Account is a great way to keep you and your family healthy while not breaking the bank. It is a convenient way to pay for medical expenses even though it operates on a use or lose system.
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