Nearly 35 million Americans have chosen to use flexible spending accounts to reduce the cost of their healthcare expenses. You could be saving a significant amount of money every time you make a purchase that can be classified as medical. Using a flexible spending account can help you save 20% or more when purchasing prescriptions and medical supplies.
How Does A Flexible Spending Account Work?
A flexible spending account uses money deducted from your paycheck pre-tax to pay for medical expenses not generally covered by health insurance. A portion of your paycheck is diverted directly into the flexible spending account, in much the same way that a 401(k) account is funded. The account holder determines the amount that is placed in the account during each pay period. The amount diverted from your paycheck can only be changed during the benefit enrollment period each year.
You may have little control over the types of flexible spending accounts available to you because most flexible spending accounts are obtained through an employer. There is no federal limit to the amount that can be deposited into a flexible spending account. Many companies that offer the plans to employees cap the amount that can be placed into the account at $5,000 annually.
Using The Account Funds
The flexible spending account can be used to pay for a wide variety of expenses, including insurance deductibles, prescriptions, and birth control. Other covered expenses generally include prescription eyeglasses, over the counter medications, and bandages. You will save a lot of money in taxes by using pre-tax money to pay for these items or to provide reimbursement for the money you have spent.
The money in the flexible spending account can be accessed using one of several different methods. Some accounts issue the account holder a debit card used to access the money in the account for eligible expenses. Other accounts require out of pocket payments for eligible items and then the account holder must file for reimbursement from the company managing the account.
All of the money that is left in the account at the end of the plan period is forfeited. If you have a lot of money left in the plan at the end of the year, you will not get the unused portion back. It is important to make sure your flexible spending account is not over-funded and be sure to try to use up the allotted amount before the end of the grace period. Purchase an extra pair of glasses, replenish your bandage selection, or stock up on commonly used medications to use the rest of the money in the account.