Money To Live

September 25, 2008

Flexible Spending Accounts

Filed under: spending — by moneytolive @ 5:00 am
Tags: ,

With my new job comes my first non-student health plan (yay!) and my first opportunity to open a Flexible Spending Account (FSA). Pre-tax money can be put into an FSA, and the money can be spent over the course of a year to pay for medical expenses, dental expenses, and some OTC items (i.e., Clearasil).

The funny thing about FSAs, though, is that whatever money is not spent is forfeited. At our benefits information session, I asked where the money goes … because really, isn’t it odd that the money just disappears? Whenever something is “forfeited,” it has to be forfeited to someone. The companies overseeing the accounts keep all the leftovers, which was estimated at a total of $210 million in 2004.

Because the money is pre-tax, consumers may still come out ahead. On average, 3% of deposits are forfeited. So, instead of paying 10%+ in taxes, people are paying about 3% for the FSA.

I ran through the numbers and calculated that I could potentially save $60 by using the FSA. But, I would have to file a lot of forms (5-10 annually) and would have to wait several months to be reimbursed. Some FSA plans give debit cards so that the expenses can be paid for directly (without the reimbursement step). I would be more inclined to use the FSA if it came with a debit card.

Do you use an FSA? What has been your experience?

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