When an unexpected health care cost pops up, you probably wish you had some funds set aside. Enter the flexible spending account (FSA). “Out of pocket” doesn’t need to mean out of your actual pocket, right?
What Is an FSA?
An FSA is an account that allows you to set aside money from your paycheck to go toward your health care costs during the year. In 2019, you can contribute up to $2,700. The list of expenses this money can cover is quite long, extending from everyday costs like copays and prescriptions to ones you’ll probably only run into every once in a while, like X-rays. As an added bonus, earmarking this money straight from your paycheck lowers your taxable income, saving you money.
How to Use Your FSA
If your employer offers an FSA, set it up during your company’s open enrollment period. (If they don’t, you’re out of luck, though you might be able to get a health savings account, which offers similar benefits.) Once you’ve decided how much you’re going to contribute to the account throughout the year, you can use the year’s entire amount on the first day of the plan year — no need to wait for it to accumulate. Whenever it does come time to pull funds from your FSA, either use a debit card tied to your account or submit a claim form to be reimbursed, depending on your setup. Keep any receipts you get so that you can prove your expenses later on.
There is one thing to keep in mind — what is an FSA’s downside, arguably — and that’s that the money in the account plays by “use it or lose it” rules. At the end of the plan year, you risk having to forfeit unused FSA money. Use this deadline by as an incentive to master your health care planning and budgeting.