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February 2018: Is An FSA Right For You?

If you’re currently going through open enrollment, or you’re a new-hire at a company that offers FSA’s, you’ll want to know what they are and how to use them before you sign up. Depending on the extent of your health costs, an FSA could help you save a lot of money on care- about 30% on average. But if you contribute more than you’ll need to spend on medical care this year, the funds will go away- making for a “use it or lose it” situation.

So, what is an FSA?

Also called a flexible spending arrangement, an FSA can be used for medical expenses, dental expenses and/or vision care. The amount you decide to contribute to the account for the year is deducted from your salary before income taxes or pre-tax. This reduces your taxable income, saving you money on your taxes. For example, if you put aside $2,500 in your medical FSA and are in a 30% tax bracket, you would save $750 in taxes!

How do I decide how much to put into my FFSA?

FSA amounts can be a combination of employee and employer contributions. You will either have a debit card to pay for medical expenses, or you’ll submit receipts for reimbursement. You can use your FSA for your own medical expenses, expenses incurred by your spouse, or any dependents you claim on your taxes. You can also use FSA funds for any adult children on your health plan that will be 26 years old or younger on Dec. 31, 2018. If you typically do not have high medical costs or do not have predictive costs (i.e. regular, monthly prescriptions) then an FSA may not be right for you. However, in most cases, people do have some degree of medical, dental, vision and/or drug expenses that can be partially offset with an FSA.

To decide if an FSA is right for you, try and do an analysis of your medical expenses and feel free to call into our offices to schedule a consultation appointment.

How do I use an FSA?

While you can’t use your FSA for insurance premiums, you can use it for copayments, coinsurance, deductibles, prescription medications, and dental and vision care, according to the IRS. FSAs can also be used toward medical equipment and treatments such as:

  •       Medicines prescribed by a doctor
  •       Blood sugar testing supplies
  •       Acupuncture
  •       Chiropractor
  •       Birth control
  •       Breast pumps
  •       Pregnancy tests
  •       Insulin
  •       Bandages
  •       Crutches
  •       Eyeglasses
  •       Fertility treatment
  •       Psychological treatment
  •       Smoking cessation programs

For a complete list of covered treatments and rules, go to this IRA link: https://www.irs.gov/pub/irs-pdf/p502.pdf

How much should I contribute to my FSA annually?

During open enrollment, you decide how much you plan to contribute to your FSA. You can contribute up to $2,650 in 2018, and once you have chosen your amount, you cannot make any changes until your next open enrollment period.

FSAs are “use-or-lose,” meaning the amount in your account will expire at the end of the year. However, employers do have two options to prevent employees from losing any funds remaining at the end of the year: 1) carry over funds, or 2) apply a grace period. The first option lets you carry over up to $500 to the next year. The second option offers a grace period for 2.5 months to spend any leftover funds. Employers can offer either option, but not both. It is important to check your plan summary to see if your employer offer either of these options.

Summary

An FSA can be a great way to save money on health care related expenses. It is important that you read your company’s plan summary so you’re familiar with the rules and restrictions that govern the FSA. Careful planning is necessary in order for the FSA to work properly for you. We will cover Dependent Care FSA’s (DCFSA) in a subsequent post.

As always, if you would like to know more please contact our office at (714) 547-8787 and we will be happy to help you.

Warmly,

Gregory Levin,

Managing Partner - Romero & Levin Insurance Services

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1585 E. 17th Street
Santa Ana, CA 92705

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