Tom Werner | Digitalvision | Getty Images
As the calendar turns to a new yr, you may be in danger for dropping cash if you have a flexible spending account.
Many FSA homeowners have a Dec. 31 use-it-or-lose-it deadline to use the funds they’ve put aside for the yr.
The common forfeit of funds final yr from an FSA was $300, in accordance to Rachel Rouleau, chief compliance officer at FSA Store. Of course, some account holders misplaced even greater sums.
Flexible spending accounts are accounts that may be offered alongside an employer well being plan and used to pay for eligible out-of-pocket medical prices. The cash contributed to an FSA shouldn’t be topic to federal revenue taxes.
In 2024, staff are ready to put up to $3,200 in an FSA, up from $3,050 in 2023.
Even for these account holders who may have had to forfeit a number of hundred {dollars} on the finish of final yr, the tax benefits nonetheless make the accounts worthwhile, in accordance to Rouleau.
For instance, if you put aside $2,000 in your FSA and save 30% on taxes, that quantities to $600.
“Even if you lose $300, you nonetheless made the fitting resolution,” Rouleau mentioned.
Ideally, each greenback put aside in an FSA ought to be used towards eligible health-care bills.
The excellent news is “there are millions of methods for individuals to keep away from dropping these pre-tax {dollars},” Rouleau mentioned.
If you’re uncertain the place to begin, these three suggestions may help.
1. Find out the principles for your unused FSA steadiness.
Your employer may not essentially require you to use all of your FSA funds by Dec. 31.
“It’s essential for the worker, if they’ve an FSA, they usually’re working up in opposition to the deadline to know, have they got to use it earlier than the deadline runs out?” mentioned Lawrence Sprung, a licensed monetary planner and founding father of Mitlin Financial in Hauppauge, New York.
You may have the choice to carry over unused funds into the following yr. Up to $610 may be carried over into 2024, per IRS rules. Funds above that quantity may be misplaced.
Alternatively, your FSA plan may supply a grace interval till March 15 to spend down your 2023 FSA funds.
Or you may have a runout interval, or a number of months after the tip of the final plan yr to submit receipts for certified bills that have been incurred in 2023.
To discover out the particular guidelines that apply to your account, you may contact your FSA administrator, which generally lists their contact info on an FSA debit card. Your human sources division may additionally be ready to present that info.
2. Create a technique to use your steadiness.
Though time may be working out, there are nonetheless loads of methods to use your FSA cash earlier than the Dec. 31 deadline.
If you have a greater steadiness, you may need to pursue greater ticket objects like eye exams, glasses and call lenses or dental work, steered Sprung, who can also be the creator of the e-book “Financial Planning Made Personal.”
It’s additionally a good time to pay for any excellent medical payments that have been incurred in the course of the yr, Rouleau famous.
The funds can even be used for routine care objects similar to over-the-counter medicines like ache relievers or allergy medicines, in addition to sunscreen, zits care and different routine care merchandise, she famous.
Purchases made on FSA Store’s web site up till midnight on Dec. 31 may qualify towards your 2023 steadiness.
3. Start planning for subsequent yr’s FSA funds.
When working with households to plan for FSA spending, “the primary yr is the toughest,” Sprung mentioned.
If you haven’t been maintaining monitor of your out-of-pocket medical bills, it may possibly be robust to gauge, he mentioned.
Sprung sometimes advises households to estimate how a lot they may spend, and maybe reduce that complete again a bit.
In following years, as soon as you have FSA receipts or card transactions, that may make it simpler to estimate how a lot cash you and your household may need, Sprung mentioned.
If you’re carrying an FSA steadiness into 2024, it may be a signal you may need to contribute much less when it comes time to elect your deferrals subsequent yr, he mentioned.
“[If] you assume that subsequent yr goes to be a related yr, then you actually need to use that as a gauge and begin reducing again,” Sprung mentioned.
Keep in thoughts that life modifications, such because the delivery of kids or a divorce, may additionally have an effect on how a lot you need to put aside in your FSA, he mentioned.
Importantly, flexible spending accounts are totally funded on the primary day of the plan yr. As such, you may plan to begin utilizing subsequent yr’s funds earlier to keep away from working up in opposition to subsequent yr’s December deadline.
Keep in thoughts that if you depart your job at any level in the course of the yr, both voluntarily or involuntarily, you may lose entry to your steadiness, until you are allowed COBRA continuation for your FSA, Sprung famous. However, you may nonetheless have 60 to 90 days to submit receipts.