Flexible Spending Accounts: If you are looking for an account to cut down cost, then, ‘flexible spending accounts (FSA)’ is the option. It is important you know that flexible spending account has both advantages and disadvantages. Thus, before opting for it, you should be well informed. This is to help you have a fair knowledge of what you are going into.
What is a Flexible Spending Account (FSA)?
A flexible spending account is a type of savings account that provides the account holder with specific tax advantages. It is sometimes called a flexible spending arrangement. It is set up by an employer for an employee.
The account allows employees to contribute a portion of their regular earnings to pay for qualified expenses related to medical and dental costs.
There are different ways an employee can enroll. The ways are; through the employer within 60 days of the employment. Also, life events can qualify a person for enrollment. You can enroll following the open enrollment period.
This is one of the most common types of flexible spending account. You can combine it with a health insurance plan to pay for most of the medical expenses that you will incur.
This account helps you pay for things that medical insurance does not cover. This type of account can also be used to pay for prescriptions and other treatments.
Also, note that one of the good things with medical expense account is that you can also use it to buy medical supplies.
2. Dependent Care
This type of account helps you use the money from your tax-deductible contributions to pay for dependent care.
You can contribute as much as $5000 per year towards dependent care. In most cases, this account is used to pay for daycare expenses for children that live with you under the age of 13.
In some cases, this type of account can be used to pay for dependent care of elderly adults that live with you.
3. Health Premiums
This is a type that is designed to reimburse employees for healthcare insurance premiums.
If a company does not offer a healthcare plan to its employees, they can offer this as an alternative.
4. Adoption Assistance
This type of account allows you to set aside pre-tax money and use it to complete the adoption process. This can help pay for any expenses that are incurred during the act of adopting a child.
The legal fees of an adoption process can be very expensive and without a flexible spending account, an adoption may impossible.
Some Advantages of Flexible Spending Account
As earlier stated, there are advantages and disadvantages of flexible spending account. In other words, it is not all ‘rosy’ as you may think or expect.
Below are some of the advantages of a flexible spending account;
Through flexible spending account you can reduce the amount of taxes. This is because; you can contribute to your flexible spending account through payroll deductions.
What this means is that the money is taken out before taxes. Therefore your taxable income is lowered and can reduce the amount of taxes paid.
Another advantage of flexible spending account is that it covers medical savings. Although health insurance can cover many expenses, it sometimes does not cover auxiliary medical costs.
Thus, with the help of flexible spending account, you can be protected when the need arises.
There is Financial Coverage for items not always Covered by Insurance
Another benefit of flexible spending account is that you have a way to cover any auxiliary care requirements which may be necessary over the course of a year.
This means that your insurance might not cover things like over-the-counter prescriptions, vaccines for travel, or specific diagnostic tests.
Thus, some costs require reimbursement, like the purchase of frames for corrective glasses. These items can be paid through your flexible spending account under most circumstances.
The Healthcare Benefits Apply to Everyone in your Family
Please note that, unlike other healthcare coverage benefits, your flexible spending account covers everyone in your immediate family.
Thanks to the provisions of the Affordable Care Act, that includes any adult children up through the age of 26.
Your spouse and young dependents also generate qualifying expenses through the current setup of the flexible spending account system.
There is Access to the Funds from Flexible Spending Account
It is important you know that there is access to the flexible spending account. Even though the funds are taken out with each check, you still have access to the total amount for the year.
If you have a qualifying expense in January, then the entire amount can be utilized immediately. This reduces the need to go into debt or set up a payment plan to handle this financial responsibility.
It Covers some Alternative Therapies as Part of the Benefit
Also note that there are several different treatments, benefits, and costs which are listed as a qualifying expense through flexible spending accounts.
Flexible spending account money can be used for some treatments. It can also be used for dental implants. As well as be used for supplements if you receive a prescription from your doctor.
Some Disadvantages of Flexible Spending Account
Some draw backs do exist for using flexible spending account. As such, please make sure you understand them.
Knowing the disadvantages to such an account will help you better decide whether it is right for you and your family. Here are some of the negative aspects of flexible spending account;
In flexible spending account employees are limited to a maximum contribution of $2,550 per year. However, a working spouse can also contribute $2,550 to his or her own health FSA through an employer.
Another disadvantage of flexible spending account is that you are generally required to use the money in your FSA within the plan year.
However, some employers might offer a grace period of up to two and a half months to use your FSA. Also, they might allow up to $500 to be rolled over to the next year.
Lose your job, Lose your Benefits
Flexible spending accounts are tied to your employer, so if you leave your employer, you cannot maintain this benefit.
The Benefits Disappear if you Lose your Job
The availability of funds offered through flexible spending accounts is directly tied to your employer. That means you will lose benefit access if you end up losing your job for any reason.
Even if you are laid off through no fault of your own, the yearly benefit disappears for you. That means you would lose contributions you made to the FSA after job termination, even if you did not access the money for a qualifying expense before losing your position.
The above pros and cons of flexible spending accounts show why putting some money away for healthcare expenses is beneficial.
The potential disadvantages offer legitimate reasons why an FSA might not be the right choice for some individuals or families.
A high-deductible plan which qualifies for a health savings account might be a more important priority. For other plans, this option could help to reduce your financial liabilities for ongoing care.