Why use a Flexible Spending Account?

Question

I know you can purchase prescriptions pre-tax, but is there any other benefits? It seems to me that it would take more time estimating what you'll spend per year than it's worth because of the "use it or lose it" policy.

Answer 1

Well, let's say you are in the 25% tax bracket and you estimate your family spending to be $1000 per year. That means your tax savings is $250. That's worth an hour or so estimating. It's not just prescriptions, it's also doctor co-pays, deductibles, over the counter meds like Clariton, tylenol, etc. Also, and this is great for those that don't have the vision and dental, it covers the dentist and glasses. Chiropractic and Psychiatry. Birth Control Pills. It covers alot of stuff your insurance may not that you are currently paying for now. You can go to IRS.gov and type in flexible spending account in the search engine to learn more.

I've also heard from those that have them, that it prompts them to take better care of themselves and regularly visit the dentist, etc. because the money has been set aside. It's a great benefit if your employer offers it. Mine does not, but I keep researching it to try to convince them to.

At the end of the year, if there's $100 left over and you lose it, you've still saved more than that in taxes. Or, you can do a last minute stock up on over the counters that you'll use throughout the year. I think even vitamins are includable.

Answer 2

FSAs have a number of things going for them. First, there is the tax savings for you. If you're in the 15% tax bracket and you contribute $1000 to your FSA, then you are saving $150 off your tax bill. Another advantage is the fact that you can get the total amount that you've allocated to your FSA as soon as you incur an expense. For example, say you contribute $10 a week to your FSA for a total of $520 for the year. In January you purchase new glasses that cost you $550. You can turn in a claim to your account manager and they will cut you a check for $520 even though you may have actually only paid $10-$20 into the account. You can use a health care FSA for co-pays, prescriptions, over the counter medication, band aids, etc.

There is also a dependent care FSA that works pretty much the same way as the health care FSA, but the money goes to pay for your children's day care.

Answer 3

It is good for people who spend a lot of money on eye glasses, allergy meds, and other expensive items that they know they will use in the year. I have a friend who used it for lasik surgery and it made sense because it was very expensive. And at the end of the year, what ever is left in your FSA account, you can use to stock up on pain reliever and other household pharmacy items that you know you'll use, so that you don't lose it.