Real Money: Your mid-year FSA check-in (Part 2)
Last week, we discussed how summer is a good time for families to evaluate their changing needs. Which reminded us to mention dependent care FSAs that allow married couples filing jointly or heads of households to put away up to $5,000 in tax-free income to cover costs such as day care, preschool, summer day camp, and early and after school care.
The catch is it's only for children up to age 13, or for an adult living in your home who lacks capacity for self-care.
In the case of Darin Shebesta, a certified financial planner from Scottsdale, Arizona, a healthcare FSA wasn't an option because his family was enrolled in a high-deductible health plan (HDHP) with a health savings account (HSA), and tax rules don't allow workers to have both a healthcare FSA and an HSA.
But when Shebesta's wife became eligible for a dependent care FSA through her job last year, the couple decided to withhold $1,000 from her paychecks to cover early care expenses for their 10-year-old, factoring in a few summer months without school.
After performing a mid-year check-in, monthly fees for early care have been running even with what they anticipated, said Shebesta. That predictability, along with careful planning, has allowed them to keep more of their money.
Putting away the $1,000 over the course of the year "is going to save us about $300 in taxes, and in my view that's worth it," Shebesta said.
Another issue to weigh is the administrative burden. If you spend more time filing claims and processing paperwork than enjoying the FSA benefits, ask yourself whether the tradeoffs are worth it to you. Marguerita Cheng, a certified financial planner in Gaithersburg, Maryland, recommends the following approach to streamlining the process if your have a paper-based administrator.
Keep a file of claim forms so you don't have to print new ones every time. And ask for a receipt when you check in at the doctor's office. This can save time so at the end of the appointment you get an itemized bill of the copay you paid and anything extra such as a flu shot that is FSA-eligible.
Finally, people who consistently have few medical needs may be better served by an HSA instead of an FSA, since the contribution limits are higher and the tax benefits are greater, Shebesta says. He recommends HSAs as a way to lower monthly insurance premium costs and take advantage of a triple tax benefit for current and future out of pocket medical expenses.
That is, payroll-deducted contributions are made with tax-free dollars. The money grows tax-free. And withdrawals are tax-free as long as HSA funds are used to pay for qualified medical expenses.
HSAs can be a big win for people with minimal medical needs -- as long as those who choose them can self-insure to cover the higher deductibles that pair with HSAs. If your company doesn't already offer a high-deductible health plan with HSA and it makes sense for your circumstances, summer is the time to make a request to your human resources department.
Whether you budget week-to-week, or plan to use your FSA for bigger things, our weekly Real Money column will help you maximize your flex spending dollars. Look for it every Tuesday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram, YouTube and Twitter.