The cost of prescription medicine
You may be wondering, "Should I get an FSA?” or “Is an FSA worth it in my particular case?" Let's break it down this way. In many ways, "young and healthy" is a myth. People of all ages experience a variety of health issues that include both mental health and physical health. In fact, according to a recent study, nearly 40% of 18 to 44-year-old Americans used prescription drugs in the last 30 days. After all, just because you take prescription medicine doesn't mean you are old or have ailing health. It simply means that you take care of your health.
Whether you take prescription drugs every day or twice per year, you might be able to save money on them with an FSA plan. You can spend FSA funds on prescription medicine because they qualify as a medical expense required for the treatment of a specific health issue. Plus, you can use FSA money to pay for over-the-counter medicines.
Copays and deductibles are eligible
A lot can happen in a year. Whether it's an unexpected surgery or a persistent cold, you might find yourself visiting the doctor more than you anticipated. Luckily, you can use FSA funds to pay for copays and deductibles, as they qualify as an eligible expense when visiting a medical practitioner for a health-related cause.
That's great news for your bank account because it means that you will save an amount equal to the taxes you would have paid on the money you set aside in a separate fund or savings account. You might be young and healthy, that doesn't mean you're not young and broke too. And, health care costs aren’t cheap.
You set the amount
One of the best things about having a flexible spending account is that you get to determine the amount of money you contribute each plan year. There's a FSA contribution limit to how much you can add to the account—$2,750 in 2021—but you're able to contribute less.
If you're young and generally healthy, then it might be a good idea to create a list of estimated medical expenses for the upcoming year. It's essential to make sure any anticipated medical expenses are also deemed qualifying expenses according to your healthcare FSA plan.
Remember, you can use FSA funds to pay for dental, vision and mental health visits, so estimates for those services should also be included. If you estimate your costs beforehand, it's a win-win for your savings account and your health.
"Use it or lose it" isn't as scary as it sounds
In general, you must use the money in your FSA fund within the plan year. If you don't, there's a chance you might "lose it" (the unused funds goes back to your employer to help offset the costs of administering the healthcare expense program). But some employers offer a grace period of 2.5 months to use remaining funds for FSA holders and some employers even allow employees to roll over up to $550 per year to take advantage of tax savings (but they cannot offer both options at once). Just as there are HSA rollover rules, an FSA plan may have unique limitations in terms of rolling over excess funds. Therefore, it is important to clarify any restrictions with your employer or plan administrator.
But even if you end up with some extra FSA dollars at the end of the year and your employer doesn't offer any of those benefits, you don't have to "lose it." You can use your remaining FSA money to buy FSA-eligible products, and there are thousands of FSA-eligible health items to choose from.
Of course, not all FSAs are created equal. While the IRS has defined eligible categories, employers can choose to design their health FSA plans to cover some or all of those IRS qualifying expenses. Therefore, we advise that you always check with their FSA plan administrator or HR department about exactly what their medical FSA will cover when open enrollment starts.