The Last Chance: Maximize Your Savings with a Flexible Spending Account
Are you leaving your hard-earned money on the table? A Flexible Spending Account, or FSA, is an incredibly useful way to lower your tax bill and save on qualifying medical expenses. But, these funds don’t rollover, and and if you don’t use them, they expire! Follow the tips and tricks in this article to make sure your FSA is working for you.
What Exactly Is an FSA?
An FSA is a special account that allows you to deposit pre-tax dollars from your paycheck for use toward qualifying medical expenses throughout the year. The account is not to be confused with an HSA, a similar tax-advantaged account with higher contribution limits ($3,850 for individuals and $7,750 for families in 2023). Unlike an HSA, unused funds in an FSA are forfeited at the end of the plan year.
FSA Expiration and Grace Period
“Any funds remaining in FSAs at the end of the plan year (or grace period, if offered by employer) may be forfeited, with some alternatives such as a carryover provision (up to $610 for 2023) or a grace period,” explains Michael Most, principal wealth manager at Savvy Advisors. Most employers offer a grace period of up to two and a half months to use the money in your FSA after the year ends. It’s important to check with your human resources department to find out the exact details of your plan.
How to Spend Your FSA Balance Before It Expires
Once the year comes to an end, it’s time to take stock of your FSA balance and make sure you don’t forfeit any of your hard-earned money. Qualifying expenses for an FSA include prescription and over-the-counter medications, medical supplies, dental and vision expenses, orthodontic treatment, insulin and diabetic supplies, and medical equipment. If you have extra money left after covering the year’s medical bills, consider visiting your doctor for an overdue check-up or ordering medical supplies you know you’ll need in the upcoming year (e.g. vitamins, first aid supplies). Additionally, check out FSAstore.com for non-traditional medical products that you can purchase with FSA funds (e.g. massage guns, fitness-tracking rings, etc.).
Tips for Managing Your FSA
Given that unused FSA funds don’t rollover, it’s important to be conservative when estimating how much money you plan to spend in the upcoming year. According to Lei Han, CPA and associate professor of accounting at Niagara University, one approach is to use your previous year’s medical expenses as a guide for how much you will spend in the new year. This method is especially useful for those with chronic conditions who can expect to spend similarly from year to year.
Secure Your Savings Today
An FSA is a great way to save on health care expenses and lower your tax bill. But don’t let your hard-earned money expire! Follow the tips outlined above to make sure your FSA is working for you and never let your savings slip away.