by Kelly Whalen
Flexible Spending Accounts (FSAs) offer some great benefits. Healthcare FSAs are particularly helpful in easing the pain of spending on expenses like prescription eyeglasses, orthodontia, or medical expenses. With FSAs being funded by pre-tax dollars they can add up to some significant savings on healthcare spending.
While the savings and benefits are clear, many people choose not to use their FSA plans. This is often because of myths surrounding these accounts. These myths shouldn’t keep you from signing up, so let’s dive into what you need to know about Flexible Spending Accounts.
Myth #1: You always ‘use it or lose it.’ This is mostly true, but there’s a catch. Some employers will let you roll over some funds into the next year. In some cases, you can roll over as much as $500. Another alternative your employer may offer is the ability to get an additional 2.5 months to use those funds. This means you will have 14.5 months to use the amount you contribute. This can be helpful if you have to spend for medical, dental or vision expenses in the coming plan year. Make sure you have all the information when you sign up for your account.
Myth #2: Your expenses frequently get denied. This common misconception states that it is difficult to get reimbursed for your legitimate healthcare expenses. You may have to provide a receipt to your FSA provider, but if they’re qualifying expenses they will be reimbursed.
Myth #3: It’s hard to get reimbursed. It is fairly simple to get reimbursed in most cases. Most plan providers offer direct reimbursement methods making the days of paying yourself, submitting receipts and waiting weeks to get a reimbursement check a thing of the past. Many FSA providers offer a debit card attached to your FSA account. You only need to swipe to spend those FSA dollars — no reimbursement needed.
Myth #4: You can only use your FSA plan for medical expenses. You can also use your FSA plan to pay for dental and vision expenses such as orthodontia, dental work, prescription eyeglasses and sunglasses and contact lenses. So on top of medical expenses, you may be able to cover a lot of your out-of-pocket costs.
Myth #5: FSA plans are expensive. There are no fees associated with a flexible spending account. All the money you put into your account is yours to spend. In addition, you’re saving money by putting in pre-tax dollars. Finally, some employers will kick in additional funding when you sign up or perform certain ‘healthy activities’ like going to a yearly checkup with your doctor.
Myth #6: You have to put the maximum contribution into your FSA to see the benefits. You can reap the benefits no matter the dollar amount you contribute to your FSA. If your employer contributes funding, take the steps needed to take advantage of those amounts. No matter what you contribute you’ll see some tax benefit. You can contribute up to $2,650 in 2018.
Myth #7: You have to build up funds to spend them. FSAs allow you to use the full amount of your FSA account as soon as it’s a new plan year. That means you can use your full election (and any employer contribution) on day one of the new plan year.
Now that these flexible spending account myths have been busted, it’s easy to see why FSAs are something to consider when you have the option. Generally you need to enroll in an FSA during your employer’s annual enrollment period. You can find out more about your FSA options by talking to your employer’s Human Resources department.
Disclaimer: All content in this presentation is for informational purposes only and is not intended to provide tax, legal, insurance, investment or other financial advice. No part of this presentation should be construed, explicitly or implicitly, as an offer to sell, a solicitation of an offer to buy, an endorsement, guarantee or recommendation for any financial product or service.