Flex-Ed: Common FSA mistakes (and how can you fix them)
Money mistakes are inevitable. No matter how hard you try to budget and save, there will also be unexpected expenses and unplanned events.
Like most people, I've made my share of financial mistakes (like the time I spent $90 on an UberSelect). But there's one mistake that I've vowed to never make again.
I will never again ignore the HSA and FSA options offered through my employer. I learned that lesson the hard way when I lost out on thousands in savings during my first full-time job.
But here's the deal—I'm not the only person who has made mistakes with flexible spending accounts. Whether you forget to enroll or fail to save receipts, you're not alone. Here's some thoughts on oversights, written by people just like you, giving some inside views about all-too-common FSA mistakes.
Keep your receipts
It seems silly, but it can be difficult to remember to keep your receipts, especially when you're in a hurry or feel sick, but it's important to maintain documentation for all of your FSA purchases. Whether it's for reimbursement from your employer or for tax purposes, it's always a good idea to have a paper trail.
"[A common mistake] is not keeping all the receipts for medical expenses or assuming all medical expenses qualify. It's important to talk to the provider of the plan and ask questions before assuming it will be taken care of," advises KJ Dykema, an insurance professional in Seattle.
In fact, even if you have an FSA card, the IRS still requires that most FSA reimbursements have a receipt. Plus, your employer may ask for a copy of itemized deductions to confirm that a purchase was eligible for reimbursement through your FSA. If your employer asks for a receipt and you can't produce one, you may be asked to pay back the expenses.
When in doubt, keep your receipt. Your future self will thank you.
Reevaluate your FSA allocations each year
Thanks to the tax reform bill passed in December 2017, your taxes are different this year. That means that your tax rate might have changed since you made your FSA elections in 2017. This is important to consider as you think about how much to put away for next year.
"Consider your medical expenses for this year before making any changes to your FSA for next year. If you think you are having trouble meeting what you put away this year, put less. With lower tax rates, you will be giving up less if you happen to spend more," advises Russell Rivera, President of Voice Wealth Management in New York, New York.
It's always a good idea to estimate your health expenses for the year, but you don't need to panic if you have some money left over. You're always able to spend your FSA funds on health-related products.
Know the differences between accounts
It might sound simple, but one of the best things you can do to avoid any potential mistakes is to know the difference between an FSA and an HSA (or an FSA and other types of pre-tax accounts you may be offered)..
"An FSA is owned by your employer. Make sure you are crystal clear on what the rules are for your particular plan. Know the rules and understand the basics between an FSA and a HSA," explains Chris Ball, a financial advisor in Michigan.
There are some notable differences between the two options and determining which one is better for you will ultimately depend on your eligibility and needs.
It's never fun to make mistakes, but the good news is that mistakes help you learn. Whether you're a first time FSA user or a seasoned pro, it's always a good idea to triple check your paperwork, read the fine print and evaluate your plan each year.
New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center.