Your health flexible spending account, or FSA, saves you money by putting a selected amount of your pretax income toward medical, dental, and vision expenses, along with other health-related products and services. And it comes with some benefits you might not yet know about.
Here's the inside scoop.
As a new employee, you have 30 days from the date of hire to enroll in an FSA, says Jina Etienne, a certified public accountant and member of the AICPA Financial Literacy Commission. So you don't have to do everything when you're just getting settled.
Even if you missed your company's enrollment deadline, you may still be allowed to make changes during a qualifying life event. "Something can trigger eligibility where you weren't eligible before," says Etienne.
These events can include "annulment, spouse death, legal separation, and birth, death, adoption," says Steve Neeleman, founder and vice chair of health savings trustee HealthEquity. "If you have a change that qualifies under your summary plan, you can go in and make any change consistent with the allowed amount."
"For qualifying events, employers can allow their employees to either change the amount they are contributing to their FSAs, or to begin or stop contributing to FSAs," he says. "If you have a qualifying event, it's a good idea to call your employer to get clarification on their policy."
"One thing people don't always know is that they can use 100% of their annual amount immediately," says Etienne. "This is because the IRS requires employers to make the total amount you elected to contribute for the year available 'at any time during the coverage period,' even if you haven't actually contributed the full amount yet."
Said another way, even though you'll put in a little of money with each paycheck throughout the year, you can spend it as soon as you need it come January 1.
But there's a flip side: "If you leave a job, you lose it," says Neeleman. "For the employer, the fact that there will be a proportion of people who will use it early and leave, that's balanced by people who leave early and don't use it, and people that don't use all their money even if they have a rollover, and put in more money than they expect to."
He suggests you ask yourself if there is a chance you will be leaving your job and look at your near-term expenses before making your decision.
If you didn't use up your entire FSA in one calendar year, you may have some options. You might have a grace period in which you can spend that prior year's money, or you may get to roll over some funds to use throughout the coming year. "Companies need to choose an extension, up to 75 days, or a rollover up to $500," says Neeleman. "Anyone should ask how much is going to be rolled over, and the nice thing is there is no deadline on that."
If you have the extension, think about what kinds of appointments you may want to set up for the start of the year. Want to stop smoking? You can seize this opportunity to sign up for a smoking cessation plan as part of your plan for the new year. "Or if you have back problems and always wanted to try acupuncture, it doesn't hurt to dabble in January," she says.
"We all think of medicine as 'I need to take a cough drop or an Advil,' the way we've always done it, and we think of doctors and 'I need to get XYZ done,'" says Etienne. "This is an opportunity to think about how to put together a 360-degree view of your life in terms of medical-related stuff."
Sydney Myers, merchandising specialist for the FSA Store, which sells 4,000 FSA-eligible products, says that you have a lot more options than you might realize. "One popular category is drug-free pain relief, which includes acupressure mats that go on the floor," Myers says. "They fall into the 'surprisingly eligible' category. People will come in looking for a brace and find something like KT tape or cold packs."
Certain FSA-eligible items or services may require a prescription or letter of medical necessity. This can be true for everyday items like over-the-counter cold medicines as well as less ordinary products.
"Some people get confused when they know they can get Advil without a prescription and why would the doctor need to write a prescription? Just know to watch for the words 'with a prescription," says Etienne. You can find this for items listed on the FSA Store and with FSA administrators like HealthEquity, or reach out to your company's benefits department.
"With an FSA, it opens up a whole category where you don't need permission to buy it but you need a prescription to get reimbursed through your FSA."
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