FSA Pros and Cons

by Dual Income No Kids on January 6, 2010 · 0 comments

It is that time of year, where most Americans have the option to take advantage of the Flexible Spending Accounts. This program allows you to take out your magic eight ball and determine how much money you might spend in the next year on medical expenses.

My office today was a buzz with folks talking about the pros and cons of this program, so I thought I’d share with out readers some of the highlights in making this choice:

Tax Break. The advantage to FSA is that it makes your medical expenses pre-tax.

Use or Loose. The biggest issue of FSA is that you must use or loose whatever you decide to allocate during the calendar year. For example, if you are like my sis last year and knew she would be giving birth, but didn’t know how much cheaper it would be to choose a home water birth, you may end up with more bandaids and aspirin than you know what to do with.

Management. FSA requires someone who is willing to deal with reimbursements. If you are someone like me, this is fine, but many others just can’t manage the effort of submitting receipts. No matter how good the tax free part is, if you don’t submit for reimbursement then FSA isn’t for you.

Effort v. Payout. For me, I take advantage even though it is for a relatively small amount of money. Last year I took $160 in allocations and would have been able to reimburse for $180-$200 without any difficulty. Obviously this isn’t a huge tax advantage for me, but I take what I can manage.

Upfront Reimbursement. You can spend all of your medical expenses on day one and ask for reimbursement but you will continue to pay into your allocations per pay period through the rest of the year. This means that if your expenses fall at the beginning of the year, you don’t have to pay off right away.

Quitting Time. Also remember that if you leave a job, you must spend all of your FSA allocations by your last day of employment. This means that if you leave at the beginning of the year and have already been fully reimbursed, you get off for the rest of the allocation – but on the flip side, you must spend everything that day. If you know you’ll be leaving, start booking those appointments now!

Readers: Let us know whether you are opting for FSA this year!



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