As a tax-advantaged account dedicated to health care expenses, a flexible spending account (FSA) can be a smart way to save money. But how do you get the most out of your FSA savings?
FSA Savings Basics
The money in your FSA typically comes straight from your salary, before it’s taxed, which means your taxable income is smaller. Translation: You’ll pay less overall just by earmarking money for items you were going to buy anyway.
For 2019, the most you can contribute to your FSA is $2,700. Your employer may supply some of this money, too. Either way, you can use the entire amount you elect to contribute immediately. (Your actual contribution is divided up and taken out of your paycheck throughout the plan year.) But take note: You’ll have to spend your FSA money by the end of the year or else lose the funds. This is why it’s important to plan your contributions (and your spending) wisely.
Within those constraints, there’s a lot of room for flexibility. You get choose how much you’d like to contribute — and, by extension, plan how much you’re able to save with your FSA.
How Much Can You Really Save?
Proactively putting aside money for health care costs means you won’t be forced to make difficult — and ultimately more expensive — decisions should the unexpected arise. In this respect, it’s hard to quantify exactly how much money using an FSA will save you. How much would it cost if you ended up putting health care expenses on a credit card you can’t afford? What about if you skipped a pricy treatment and ended up developing an even more serious condition down the line as a result? Those situations would probably be pretty expensive, but they don’t make for a very neat cost comparison.
When it comes to taxes, you can assume that you’ll save on the taxes you would otherwise have to pay. But you might be wondering exactly how much. Luckily, this is fairly straightforward to figure out.
Say you’re a single adult making an annual salary of about $35,000. Your savings for the year — assuming you used all your funds — could be almost $870 compared to spending that money after taxes. Even if you only contribute half of the maximum, or $1,350, you could still stand to save roughly $480 annually! But every case is different, so use an online FSA savings calculator. It’ll take into account factors like the scope of benefits you currently use, your expected costs and your household income when you assess your options, and then give you the information you need to make the best possible decision for you (and your wallet).