With a flexible spending account (FSA) it's usually required that you use your FSA funds within the plan year for which you contribute them, which can be a tough sell if you're generally healthy and don't have any planned health care needs.
But if you typically spend a lot on health care costs or you're already working on saving for a major surgery or procedure, it could be a no-brainer.
That was the case for me in 2015 when my son was born. By using an FSA to cover most of the hospital costs, it not only saved us money on taxes but it also simplified the payment process.
Leading up to my son's birth, my wife and I weren't financially prepared. We had been saving up for over a year to pay for the hospital bill. But we didn't anticipate how much it would cost for regular trips to the OB/GYN and other common expenses you incur as you get ready for a new child.
As my wife's due date grew closer, I began to panic. In November 2014, however, I learned that my company offered an FSA. As I did some research, I also learned that you can use these pre-tax FSA funds to pay for certain eligible medical expenses. These expenses include the costs of my wife's delivery and hospital stay.
In 2015, you could contribute up to $2,550 to an FSA (the FSA contribution limit is $2,700 in 2019) and my employer at the time offered to match up to $1,000 in my contributions (which could be in excess of the limit, although I stuck with the $2,550).
I'd get the $2,550 up front in an account with a debit card, and I'd make my portion of the contributions over the course of the year. This meant that my employer would deduct $129.17 from my paychecks every month to "fund" the account (based on my portion of $1,550).
My son was born in February of that year, and after we drained our FSA, we were only on the hook for a few hundred dollars more. Fortunately, we had enough cash in the bank to pay the remainder of the bill.
Because of the way FSAs are designed — we got the full $2,550 at the beginning of the year — paying for my son's birth was a lot less stressful.
If we didn't have an FSA, we would have needed to get on a payment plan with the hospital. This process would have required us to shift around our budget and remember to make payments each month.
But with the FSA, I was able to pay the bill in full as soon as I got it. And while we were still technically making "monthly payments" through the FSA contribution from my paycheck, we had already adjusted our budget to accommodate the deduction.
That's not even mentioning the fact that the FSA funds were from pre-tax contributions, which saved us a few hundred dollars in taxes.
The bottom line
FSAs aren't for everyone, but the way they're designed can make it easy to manage your medical bills. By getting access to the full annual contribution at the beginning of the year, you don't have to worry about how you're going to cover unexpected health care costs. And if you're already anticipating some health care costs, it can make it easier to plan for them.
In the end, the important thing is that you can afford your medical bills, and an FSA can help you do that.
New to FSAs? Need a refresher course in all things flex spending? Our Flex-Ed column gives you a 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.
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