FSA-flexible savings account

annr

annr

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An employer is offering an opportunity to opt into a flexible spending arrangement (FSA) with Paychex --paychex.com.

I am wondering if any of you has feedback or input on FSAs.

From what I've read it seems like we should join since we have out-of-pocket expenses but wonder if there is a downside that I am missing.

Thanks.
 
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It has been several years since I retired, but unless the rules have changed, the only drawback to an FSA is that any unused funds are forfeited at year-end. This is not a major problem if you have foecastable expenses. Just make your estimate a smidge on the low side.
 
I've done it for two years now and I'll do it next year, too. My wife has some health issues and it's been helpful.

Frank
 
A lot of grocery and drug stores now mark on your receipt the FSA-eligible items. It's surprising how much stuff is. And these marked receipts make filing for reimbursement easy.
 
I have elected not to do it. I am not good at saving receipts, and If you do not claim your money back they take it. If you need write offs for taxes, and are organized, or have regular med expenses then it may be worth it. I did it for one year, had refund requests denied, so it was not worth the hassle for me.
 
My employer set up an FSA, and it has worked very well for my family. As MikeH noted, it works well when you have a fairly good idea of your family's covered out of pocket expenses for the year. My plan does have the "use it or lose it" aspect; so, my wife and I plan to have the FSA cover a bit less than we expect. That way, we get it all back, and we cover a lot of our out of pocket medical expenses with pre-tax dollars.

Some programs also allow an FSA that will cover child care expenses; though I have no experience of that since my "little" girl is now a grown up woman.

Good luck with this. I hope it works well for you and your family.
 
We do it through my wife's job, and it's a mixed blessing.

Pros:
- if you've got fixed, predictable expenses, it's great.
- if you can afford to have funds taken out & held until you claim them, then it works well.
- For us, it makes tax time much easier: you're doing a lot of the filing/paperwork during the year, not right at tax time.

Cons:
- If you don't claim the funds, you lose 'em. No exceptions. (We found out the hard way.)
- There is a bit of a learning curve, figuring out all the details, so the first month or two can make you crazy.
- There is often quite a long lag time in them communicating to you that there is a problem; you may not know there's an issue until a deposit doesn't happen or a check doesn't get to you when it's supposed to. Our plan insists on mailing notifications to us, rather than just call us and tell us of an issue.
- They may hold an entire reimbursement because of one little error. (We had a $300.+ disbursement held for two weeks, for a $0.56 error that was their fault.)
- If they make a mistake, you have to wait until the next disbursement. They won't send a payment that is outside of the weekly or bi-weekly disbursement cycle.

What you participate in may be a little more 'user-friendly', what I've described above is just our experience with one program. We like participating in it, it serves us well; we just make sure we don't have a critical need for the funds immediately. When you fax or emial anything for reimbursement, follow up with a phone call.

Good luck.

thx - cpr
 
orca8589 said:
Cons:
-
- There is often quite a long lag time in them communicating to you that there is a problem; you may not know there's an issue until a deposit doesn't happen or a check doesn't get to you when it's supposed to. Our plan insists on mailing notifications to us, rather than just call us and tell us of an issue.
- They may hold an entire reimbursement because of one little error. (We had a $300.+ disbursement held for two weeks, for a $0.56 error that was their fault.)
- If they make a mistake, you have to wait until the next disbursement. They won't send a payment that is outside of the weekly or bi-weekly disbursement cycle.
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Thanks everyone. Your comments jibe with my research.

I’m always a bit skeptical when a third (IRS), fourth (FSA benefit manager) and fifth (the employer) party gets (or stand to get) a piece of the pie thanks to my health information. Jumping through hoops to spend my own money (for example we have to write in black or blue pen, can not use a highlighter, or the claim will be rejected) bugs me. Forfeiting my money at the end of the year because I DON’T spend money on health care irritates me, seems I should get a bonus for keeping costs down.:(

I also find it a bit disingenuous to be told that this is a ‘benefit’ since it was my money in the first place. Anyone know who keeps the extra $$$ when it is not spent by the person who earned the money? Bah humbug..:grumpy:

Well, can’t fight the system… looks like we can save at least $700.

cpr, I too have felt the frustration when there is a mistake in my heath care ‘benefits’ (their mistake no less) and they can’t send an email or make a phone call. Seems that the bills arrive on time.

Question: do any of you normally send your receipts to your employer to get reimbursed, or screened for reimbursement? That will be the case with our plan.

:D Imagine: this plan covers condoms. We are supposed to send this to the boss to get our money back…:confused:
 
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See if your employer offers an HSA (Health Savings Account) in addition to the FSA. Ours offers both and the HSA is much better (for me) and more flexible in my opinion. We can actually participate in both.

The HSA is fully tax deductible either pretax through payroll deduction or you can fund it yourself at any institution that offers them like a credit union, bank, Fidelity Investments, etc. and take the full allowed deduction when you do your taxes whether you itemize or not.

It will accumulate year after year, you control it fully, and you only use it when you need it for qualifying medical expenses like paying any insurance deductibles, copayments, or medicines. The HSA account institution will issue you a debit card tied to the account for those qualifying medical expenses to be paid directly from your account.

There is a limit to how much you can contribute yearly and it's in the neighborhood of $3000 or so. You can look up the details on the IRS website if you want all the details. You need to check on a yearly basis because the limits usually increase slightly year to year.

The FSA I think has much higher contribution limits and is I think much more useful to those that have high medical yearly expenses that are certain, unavoidable, and recurring like diabetics for example. With an FSA you have to budget carefully because with the FSA it's use it or lose it on a year by year basis.

The best combination is to set up an FSA for the known and certain portion of your next year's medical expenses and set up a permanent HSA funded to the maximum allowed for any future unknown medical expenses.

Of course, all of the above assumes that you can afford the deductions and aren't living paycheck to paycheck in deficit mode. If you can afford it it's a no brainer in my opinion, especially the HSA if you are in good health. Be sure to ask and doublecheck because many folks confuse the two types of accounts.
 
alex,
Thanks for sharing the information. I read most of the IRS publication on HSA and other tax- favored plans and think I followed your post reasonably well.

I like your suggestion of the HSA or HSA + FSA. Currently the FSA is the only option on the table. We reached the decision that you mentioned: due to recurring and probable escalating expenses we could make a decent forecast for the year, and will enroll in the FSA.

It appears that if one were to incur a charge in excess of one's current FSA account balance it would be reimbursed at the time of the claim up to the agreed contribution threshold. If this is true this could also be construed as cash advance on money that will be withheld?
 
annr,
I have never had the need for an FSA so I don't know the answer to your last question. Your FSA plan administrator's website more than likely should have a FAQ section where your question should be answered because it is a good one.

As far as the HSA account I recommend you check with the IRA website for eligibility because even though your employer may not offer it you still might be eligible to open one on your own outside of your employer. Doing it through the employer just allows the payroll deduction option. You also don't need to put in the whole amount. Any amount placed in an HSA is better than nothing if you qualify for one.

I am not an accountant or tax lawyer so my opinions are just what I believe to be true and correct.
 
annr said:
alex,
Thanks for sharing the information. I read most of the IRS publication on HSA and other tax- favored plans and think I followed your post reasonably well.

I like your suggestion of the HSA or HSA + FSA. Currently the FSA is the only option on the table. We reached the decision that you mentioned: due to recurring and probable escalating expenses we could make a decent forecast for the year, and will enroll in the FSA.

It appears that if one were to incur a charge in excess of one's current FSA account balance it would be reimbursed at the time of the claim up to the agreed contribution threshold. If this is true this could also be construed as cash advance on money that will be withheld?
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I a co-worker who was planning to have a knee replacement so she signed up for an FSA -- it paid her full deductible in March, even though the $$ hadn't all been withheld yet. This let her budget for the surgery better.
Like others have said - if you have an idea of your upcoming expenses it's not a bad way to budget, but the use it or lose it turns me off the whole deal.
 
I've looked at them. I will not put anything into a scheme that tells me MY money is THEIR money if I don't spend it in time. That is pure crap. There is no call to lay that criteria on a person. It is probaly a pre-tax thing? I have seen some lately where the money remains yours and can be passed on to a dependant.
 
I like it because it reduces your taxable income. I don't like it because of the potential forfeiture stuff. I added up deductibles and known prescription expenses as best as I could but since the wife and step-son didn't see the doctor and none of us got to the eye doctor or dentist, at least yet, I've about $600 in limbo. This year I only signed up to have $1500 taken out. Next years deductibles will come out of the $600 extra as I understand it and I maybe able to reclaim the rest of it if I have some dental work done. Good program if you can manage it well.

It's been nice for me because I haven't had to wonder where the money for my mail-order prescriptions was going to come from. The pharmacy bills the FSA, they deposit money in my account, I pay the pharmacy on-line. Sweet!
 
WA Martin said:
I like it because it reduces your taxable income. I don't like it because of the potential forfeiture stuff. I added up deductibles and known prescription expenses as best as I could but since the wife and step-son didn't see the doctor and none of us got to the eye doctor or dentist, at least yet, I've about $600 in limbo. This year I only signed up to have $1500 taken out. Next years deductibles will come out of the $600 extra as I understand it and I maybe able to reclaim the rest of it if I have some dental work done. Good program if you can manage it well.
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I agree and the only thing I hate more than jumping through hoops to get reimbursed is paying taxes in the first place.

The way I figured it was that if I stand to save $700 next year and I have anything less than that in the account at the end of '10 I will have broken even.

My other thought would be to buy prescription eyeglasses in December. It never hurts to have a spare pair or two.:)

By all means go to the dentist, especially if you have the loose change in limbo. We go two times per year each which is considered normal out here by our insurance company.


alex,

It looks like the HSA is for people with high deductable health insurance plans which opens up a whole can of worms: shopping for insurance as individual rather than as part of a group. Seems this is the trade-off.
 
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