Flexible Savings Account: Use-it or Lose-it before year-endDecember 17, 2012
Does your FSA Spending Account still have a large balance?
Having money set aside in one of the numerous health savings vehicles such as a Flexible Spending Account or FSA, is a great tax savings vehicle. Not only are your FSA contributions not taxed, but you don’t have to wait until you have enough money in the account saved up before you can subtract a planned (or unplanned) medical expense.
Your total contribution although deducted in monthly increments from your paycheck is available in full on the first day of your plan year and can be used for expenses such as braces for your children or prescription co-pays. On January 1, 2013, the limit on contributions to healthcare flexible spending accounts (FSAs) are scheduled to be $2,500.
Years ago, every penny of your FSA had to be spent by the last day of the plan year or it was forfeited. Now, if your employer amends its plan, participants can get an extra 2-2 and ½ month grace period to spend the funds. So assuming the plan operates on a calendar year basis, the new deadline would be March 15 of the following year, if your employer plan allows it.
The “use-it or lose-it” rule still exists, but this extension softens the blow, making it easier to get the maximum benefit from an FSA.
It is important to know that in order for this extension to apply, employers must amend their FSA plans by December 31st. Don’t assume you have the additional time to use your funds until you have checked with your benefits’ department to verify that an amendment has been adopted.
You might want to use unspent contributions for a spare pair of eyeglasses or prescription sunglasses. If you’re due for a dental checkup, consider moving it up to the current year.
Some helpful tips:
- Estimate carefully when you are setting aside your contributions for the coming year.
- Contribute enough for all of the expenses you expect, such as co-pays, ongoing prescriptions, and replacement eyeglasses.
- Pay attention to your account balance, monthly updates are usually sent out by your provider to help you make sure you are spending as planned.
For additional information on health saving vehicles such as FSAs please contact any member of our Tax Services Team.