What to know about flexible savings accounts or FSAs.
If you’re looking for a way to save on medical expenses, a flexible savings account (FSA) might be the way to go. An FSA allows you to save and use money for healthcare expenses with specific tax advantages.
How Does an FSA Work?
FSAs are only available through your employer (and not all employers offer them.) If your employer sets up an FSA, you can contribute a certain amount of your earnings before they’re taxed, or pre-tax. That allows you to lower your taxable income. Your company can also contribute to your FSA. Due to its tax advantages, the IRS sets annual contribution limits and guidelines on eligibility for healthcare expenses.
Now for the pros and cons of an FSA:
Pros for an FSA
Reimbursement for Healthcare Payments
Your pre-tax funds can be used to reimburse the costs of diagnoses, treatments, prevention methods, and more.
Cover Loved One’s Healthcare Costs
If you own an FSA, you can use it to cover the healthcare costs of your spouse and dependents.
Cover Medical Equipment
You can use your FSA to cover the cost of qualified medical equipment.
Reimbursement Amounts for Insurance Deductibles
You can also use an FSA to reimburse yourself for deductibles, which is the money you spend for health care services before your insurance begins to pay.
Cons of an FSA
Lack of Coverage
Not every healthcare cost can be paid for through an FSA. For example, you aren’t able to use your FSA funds to cover any cosmetic surgeries. The IRS has guidelines on which costs are eligible and which are not.
Limited Rollover
In general, you must use your FSA funds within the plan year. If you don’t use the money, it’s gone. There is some rollover, but right now it’s capped at $610 per year.*
Not Eligible for Premiums
While an FSA can cover insurance deductibles, it can’t be used to cover insurance premiums.
*based on the 2023 IRS guidelines