Key Takeaways:
– End of year is crucial for Flexible Spending Account (FSA) holders who must spend unused funds or risk losing them.
– Employers or plan administrators often set varying deadlines for fund expenditure, some offering grace periods or carry-over options.
– Qualifying expenses include health care copayments, eyeglasses, travel costs to doctor’s visits, and more.
– While similar to FSAs, Health Savings Accounts (HSAs) differ in crucial ways, including no roll-over limit and they come with investment options.
Understanding Flexible Spending Accounts
Flexible Spending Accounts provide a tax-friendly way for employees to cover assorted health-related expenses. By setting aside part of their pre-tax salary, employees can utilize their FSAs for copayments, deductibles, eyeglasses, and other medical supplies. Each individual can allocate up to $3,300 annually in such accounts.
However, predicting these costs accurately can be a challenge as it requires estimating potential medical needs throughout the year. The ‘use-it-or-lose-it’ rule mandates that those funds not spent within a certain timeline are forfeited.
Deadline Nuances
Varied as they may be, each FSA comes with its own deadline, often determined by employers or plan administrators. In some instances, the cut-off could be as early as December 31. However, many plans accommodate participants with extended grace periods or permit them to carry forward some portion of their leftover balance into the following year.
Yet, there are restrictions. According to IRS guidelines, the maximum balance that can be carried over to 2025 is $660 – surplus amounts remaining by plan deadlines are forfeited. As a participant, it’s crucial to understand these timelines and requirements fully.
Spending Your FSA Balance
FSA funds can be utilized for an array of medical expenses not typically covered by insurance. Eligible costs are classified by the IRS and range from travel expenses for medical appointments to purchase of eyeglasses, bandages, sunscreen, and more. Some plans even allow for the use of FSA dollars for gym memberships or electrical massagers, provided there’s a medical justification.
However, it’s pertinent to note that not all expenses qualify. For example, health insurance premiums or certain cosmetic procedures, like teeth whitening, are non-qualifying expenses. Anticipating this, it’s advisable to hold onto any qualifying expense receipts like doctor’s appointments copayments.
Avoid stockpiling aspirin or other over-the-counter drugs to use up your balance; plan administrators often monitor such activities. Instead, limit purchases to roughly a year’s supply.
How FSAs Compare with HSAs
While Health Savings Accounts share similarities with FSAs, it’s necessary to highlight their differences. With HSAs, account balances are not forfeited at year-end, they remain with the holder even if they switch jobs, and some plans permit funds investment in varied options.
Further, HSAs are only compatible with high-deductible insurance plans. Account holders can contribute several thousand dollars each annually, depending on their respective coverage. In contrast, FSAs are less restrictive, working with a broader range of coverage types, and offer more immediate access to funds.
With the New Year fast approaching, it’s worthwhile for FSA holders to familiarize themselves with their plan’s specific rules. Decisive action could save precious dollars from being lost and ensure maximum benefits.