I will take it for granted that the savvy readers of this blog are motivated money-savers. The folks here are the types who want to take charge of their financial life one cent at a time with a clear goal in mind. So perhaps my message today is just preaching to the choir; Nevertheless, it never ceases to amaze me what excuses people will give for leaving hard-earned money on the table.
Let’s take that health Flexible Spending Account, for example. You know, the one that is offered by your employer, which allows you to put away some of your pre-tax earnings to spend on eligible health-related products and services?
If you are already enrolled in one from your employer, congratulations, you understand the power of effectively getting a huge discount on goods that you may already purchase frequently. And if you are not, I want to use this opportunity to read your mind with 4 excuses that you are most likely harboring.
4 Excuses For Not Enrolling in FSA
1. FSAs are complicated, and I don’t get it
Just try to take a moment to understand it. You first decide any amount (up to $2550 for 2015-2016) to contribute to your FSA account based on your estimate as to how much you or any family member might need for medical expenses that coming year.
Your employer deducts a pro-rated amount (before taxes) from each of your paychecks and straight into your FSA, until it reaches the total amount you designated. Then starting from the benefit year, whenever you pay for a “qualified” medical expense used by anyone in your family, you’ll pay from your FSA account. (You’ll use an account-linked debit card, OR pay out-of-pocket up front and get reimbursed from your FSA later).
Notice your FSA was funded by your salary before Uncle Sam takes his portion (taxed), which is the reason all of this is magic and worth your while.
Your savings depends on what tax bracket your salary puts you in, but given the typical range of 20% to 40% for federal income tax, it’s sure worth it.
There are rules to what qualifies as a medical expense, yes, sometimes it can be a drag to submit reimbursements. But like anything, if you learn the rules, it will become easy to save money.
2. It’s just not worth the hassle of dealing with the paperwork
Let’s say I give you $2550 to put in either a savings account, the stock market, or an FSA for one year. Depending on your tax bracket, FSAs will guarantee a 20% to 40% return. If you can guarantee that on Wall Street, you’ll probably have a ton of wealthy clients wanting to invest with you.
And let’s not even mention how that trounces the pitiful interest rates on savings accounts these days. So suppose your tax bracket is at 30% of your income. If you designate the max $2550 in your FSA and use it all up on qualified expenses, you’ll have a return of $765 this year.
Is that worth learning how to use your FSA and navigate the documentation? It sure has been for me. Plus, it’s become easier to deal with reimbursements through FSA debit cards that reduces a lot of paperwork.
And let’s not even mention how that trounces the pitiful interest rates on savings accounts these days. So suppose your tax bracket is at 30% of your income. If you designate the max $2550 in your FSA and use it all up on qualified expenses, you’ll have a return of $765 this year.
Is that worth learning how to use your FSA and navigate the documentation? It sure has been for me. Plus, it’s become easier to deal with reimbursements through FSA debit cards that reduces a lot of paperwork.
3. Look, I don’t have enough medical expenses to bother
It’s probably like many of us to underestimate what we’ll spend on medical, dental and vision expenses. But think for a minute: If you might see a doctor, dentist, or get an eye exam this year, know that your co-pay qualifies as an FSA expense.
Wear contacts?
Your pricey disposable contacts and contact solution (yea even the fancy kind that bubbles/oxidizes) is FSA-worthy. Want that latest pair of Warby Parker eyeglass frames this year? Thanks, FSA. How about that unplanned (aren’t they all) cavity that needs filling? You might have a pretty high deductible to pay to your dental insurance.
Well, your FSA will relieve some of that pain by paying for it with its pre-tax goodness. You get the gist. Think of it as getting a 20% to 40% discount (again, depending on your tax bracket) on all this FSA-qualified stuff you
You might have a pretty high deductible to pay to your dental insurance. Well, your FSA will relieve some of that pain by paying for it with its pre-tax goodness. You get the gist. Think of it as getting a 20% to 40% discount (again, depending on your tax bracket) on all this FSA-qualified stuff you
Thanks, FSA. How about that unplanned (aren’t they all) cavity that needs filling? You might have a pretty high deductible to pay to your dental insurance. Well, your FSA will relieve some of that pain by paying for it with its pre-tax goodness. You get the gist. Think of it as getting a 20% to 40% discount (again, depending on your tax bracket) on all this FSA-qualified stuff you
Think of it as getting a 20% to 40% discount (again, depending on your tax bracket) on all this FSA-qualified stuff you already pay for on a regular basis.
4. All sounds great, but I’ll end up losing what I haven’t used by the end of the year
The much-feared “Use-It-or-Lose-It” rule used to be a legitimate reason that scared folks off from using an FSA. Mainly because funds you didn’t use in the allotted benefits year expired and went straight to your employer’s pockets.
But starting in 2014, the IRS decided to allow employers to either allow up to $500 of unused balance to roll over to the following year OR offer a grace period (typically 2 and a half months). Great, huh? But even if your employer is really mean and doesn’t offer either of these, a little planning should give you confidence that you’ll be able to use up every penny of your contribution.
Convinced yet? My hope is that you will invest a little effort and give that FSA a shot this year. Luckily, there are more and more wonderful communities online, like this One Cent at a Time blog, to support you. And, if you would like to witness my own adventure of using my FSA account, I invite you to check out my blog.
My wife and I try our best to share tips that might save you headaches, ones which we experienced the hard way. Just remember, during this open-enrollment season with your employer, give the health Flexible Spending Account a chance to save you some hard-earned money!
In my experience enrolling employees in these plans, most people fear leaving $100 unused in their FSA than they do paying an extra $600 to the IRS. It makes no sense logically.
Absolutely! It’s great to hear it from the perspective of someone who has experience trying to enroll/convince employees of the merits. Thank you.
I have to admit that I definitely fell into this category when I first started looking into these options with my employer-sponsored healthcare! Luckily they also offered an HSA with my high-deductible plan a couple of years later so I’ve been able to take advantage of the tax deduction after all!
Free money and a medical safety net = Win-Win
Great! I am going to check out the article its very informative thanks to share this.
Thank you, best of luck, and I hope you end up saving a lot of money!
Since my employer does the $500 rollover, I do always put at least $500 in. Given how many items are eligible for reimbursement, we can always use at least $500 each year. Since I track all our expenses in Quicken, I know we always spend much more than that on average each year. But it can be a large paperwork hassle to file receipts and paperwork for a hundred $20 expenses. We have a debit card, but even with that, they want to see a receipt, so every use of the FSA requires about an hour of overhead to track, scan, file the paperwork.
When we know we’re going to have significant expenses, e.g. childbirth, we max it out knowing we’ll use it all minimal paperwork overhead.
Saving money is good. But time is the one thing there’s never enough of.
You have very technical stuff and it gives me information. Thank you
I hope the information provided was useful and this will really help you in your life.