Use Health Savings Before the End of the Year
Since the costs of health care for the average person or family are often high and can vary significantly from one year to another, it's beneficial to use every tool at one's disposal to reduce them.
Since the costs of health care for the average person or family are often high and can vary significantly from one year to another, it's beneficial to use every tool at one's disposal to reduce them. One popular way to do just that is through a tax-advantaged savings account like a flexible spending account .
If you get health insurance through work and your health plan offers it, take advantage of the FSA - users may contribute up to $2,600 per year to the account and use those funds to cover out-of-pocket medical expenses. Since this money is tax deductible, it will help reduce the amount of tax you owe at the end of the year.
However, there is one important caveat to FSA plans: You need to use most of that money before the end of the calendar year. FSA funds left over at the start of a new year can be handled in one of two ways, depending on which option your employer chooses:
- The FSA will include a grace period into the new year during which you may use any remaining funds. This grace period usually runs from Jan. 1 to March 15 of the new year.
- The FSA plan provider will allow you to carry over up to $500 into the next year.
FSA plans can offer either one of the options for participating employees, but not both. And any money not included within those plans will essentially disappear. That's why FSA participants need to budget out their health spending to ensure they get the most bang for their tax- deductible buck.
How to use extra FSA funds
Since FSA contributions can only be spent on out-of-pocket health expenses, it might seem like the options for spending leftover money before losing it are slim. But as Nerdwallet reported, this is a pretty common misconception . Most FSA plans will publish a full list of products and services that are eligible, and will often even have an online store where some of these health-related products can be purchased using the account. Of course, copays and coinsurance for health claims, doctor visits and more are eligible, too.
FSA users can even submit claims for health expenses they made during the year that were not paid for with the account at the time. For many plans, that means travel for medical care, acupuncture treatments, birth control, dental implants and even costs related to caring for qualified service animals are covered. Families with children who are also covered under their insurance plan can also put FSA spend toward costs for their care, even if the children are adults and no longer being claimed as dependents on tax returns.
Clearly, there are plenty of options for those who could have been proactive about planning for and using FSA funds in time. But Nerdwallet also pointed out that if you find yourself scrambling to use this money at the end of each year, it's a sign that you might be putting away too much of it.
While you should still do what you can to use that money before it's gone, take the opportunity to re-evaluate your FSA contributions for the new year. Maybe you reduce the amount that is withheld from your paycheck and instead use that extra cash to pad your emergency savings account, or divert it into your retirement plan. No matter what you decide, look for ways in which money that would've gone into an FSA is put toward other smart savings goals.