Flexible Spending Accounts

It's October, so here in the US a lot of people are looking at their benefit plans at work, so that they can make decisions in November. One of the benefits which you may not know about is the Flexible Spending Account.

The Flex Spending Account is a way to set aside money at the beginning of the year, for your use during the year, for dependent care or medical expenses (you get separate accounts for dependent care and medicals).

Employers (with 500 or more employees - not every employer offers this benefit, but more than 50% do) allow you to set aside between $2,000 and $5,000 (or less, of course) for medical expenses. This amount is variable because it's dependent upon what the employer allows. The beauty of the plan is that it's before-tax money. So, say you set aside $3,000 and you're in a bracket wherein you pay 33%.

You get full use of that $3,000, whereas, if you used after-tax money, you'd only have $2,000 to spend.

The best way to calculate next year's expenses is to look over this year's expenses. Do you have monthly prescriptions? How often do you ee a doctor or dentist, and what's the co-pay? How many people use the benefits? Do you buy eyeglasses? All of these things are covered. Let's say you have 4 prescriptions. 2 are monthly and come to $20 total with the co-pay. So they cost $240/year. The other two are every other month and also come to $20 total. They're another $120. Add in a doctor visit and 2 dentist visits (both with $10 co-pays per visit) and your total is:

$240
$120
$ 30
$390

While you may be tempted to add in more money to be set aside (in case of emergencies), don't set aside more than perhaps an addition 1/4. This is because, if you don't spend the money in your account, you will lose it. I have lost money before, and there's nothing you can do to get it back.

As for dependent care expenses, they can be set aside for a child or even for a dependent parent. Again, calculate monthly or quarterly expenses, for things like day care, a nanny, etc. and plan accordingly.

Here's an article (which contains an expense calculator) about

Flexible Spending Accounts: Flex Spending Accounts