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Understanding and using your flexible spending account

Date posted:  11/7/16 10:00:00 AM Ensure you plan for the New Year with a flexible spending account.

We all have healthcare needs throughout the year, and these expenses can add up quickly. With a flexible spending account (FSA) you can set aside money for your health needs and you are not required to pay taxes on these funds, noted

This leads to savings equal to the amount you would have paid in taxes prior to setting the money aside. However, to get the most out of your FSA, you need to make sure you understand and use it properly.

Plan for medical expenses
Part of your budget and yearly planning should include medical finances. You and your family's health and well-being are critical. Ensure you have the proper resources and tools to pay for various medical expenses that may arise throughout the year. Review your medical insurance options carefully and make sure each member of your family is covered.

With an appropriate insurance plan and an FSA, you will be more prepared to handle expensive healthcare costs moving into the new year.

Acquire a FSA
FSAs can be helpful for many individuals and families as a medical expense aid. According to NerdWallet, they are available through your employer, and in some instances, asin a FSA for small business,  employers can contribute funds to your FSA.

Once you have a FSA, you will want to identify what you can spend the money on.

According to Bankrate, FSA money is typically used for copays and medical exams that are not covered by your current insurance policy. Wellness exams and procedures are also common expenditures funded by your FSA. For instance, a flu shot or chiropractic session can be paid for with an FSA.

Prescription medication can also be covered with this account, and with some planning, you can take advantage of an FSA for medicine used throughout the year.

"Throw out expired medications and replace them," said Bart Turney, a vice president with ADP Strategic Advisory Services, according to Bankrate. "Look at maintenance medication. Many people now get prescriptions in 3-month supplies."

If you are ever unsure about an item's eligibility for FSA money, ask the retailer. These professionals likely know what can be purchased using these funds.

Know the limit
Each year you can set aside up to $2,550 in your FSA. Typically, you should use all of this money within the calendar year because it does not roll over into the New Year. However, some employers may provide you with options if you don't spend every dollar by December.

Some employers will allow individuals to roll up to $500 over to the next year, or provide a grace period. Make sure you know what option your employer offers, and if a FSA for small business is available. Because there is a chance of losing money, make sure you contribute conservatively to your FSA, saving only what you think you can use.

"If expenses vary from year to year, I would recommend deferring an amount similar to the year with the least amount of expenses, since the unused money in the account will be forfeited back to the employer, which could possibly negate any tax savings received from the plan," said Peter Ashby, a financial advisor, according to NerdWallet.

If you have a FSA and notice there will be extra funds at the end of the year, stock up on health care supplies you will need later. Invest in contact solution, eye drops, bandages and other first-aid materials.

Another way to use the funds is to book optional medical procedures, like dental work, at the end of the year. Bear in mind that many other individuals with FSAs may have similar ideas which can crowd the offices, so this may be an option to plan for the end of 2017.

Evaluate your healthcare needs
According to Forbes contributing author Christina LaMontagne, you should write down all of the healthcare needs you anticipate having for the next year. Consider everything from prescriptions to planned procedures. If you or your spouse plan on having a child in the next year, determine the expected medical costs associated with childbirth and add it to your anticipated expenses.

In addition, you will want to plan for the unexpected. Emergencies happen, and medical emergencies can be especially expensive. Plan for trips to the emergency room when deciding how much to contribute to your FSA. If you have children, you may want to tuck a little more away as they might be a more prone to playground accidents and other issues.

Consider alternative expenses
In addition to the typical items and services FSAs can be used for, there are a few overlooked expenses that qualify. According to Bankrate, mileage reimbursement is eligible to be paid for with FSA funds, as long as the mileage is due to traveling for essential medical care. Some of these expenses may include:

  • Bus fare
  • Taxi or shared ride service fare
  • Plane tickets
  • Ambulance service
  • Parking
  • Tolls

The New Year is a great time to evaluate your current situation and make goals and plans for a successful 2017. Take advantage of this time and get your FSA in order.