How Much Should I Contribute to My Flexible Spending Account?

Flexible spending accounts are a great way to pay for your healthcare costs. The money is taken out of pretax dollars, so it lowers you tax liability when you take advantage of the account. However if you do not use the money you set aside by the end of the year you will lose it, so it is important to carefully decide how much you want to contribute each year.This amount can be changed during open enrollment.

It is important to carefully review all of the changes that are made to your benefits during open enrollment each year. 

Consider Both Childcare and Health Spending

You can have a flexible spending account that covers healthcare costs, but many companies also offer them for childcare costs, as well. You will need to determine what the maximum amount that you can contribute and then consider if you will use that much this year. Generally, you will use at least that much for childcare costs, but you may not for healthcare costs. You should check with human resources as to the process for paying for childcare, which may be slightly different from how you get reimbursed for healthcare costs.

Determine How Much You Spent Last Year

Look over the last year and determine how much you spent on out-of-pocket costs for medical items. This includes co-payments, deductibles and prescriptions. It can also cover dental and eye care.

Then determine if this is a typical amount that you expect to spend the next year. For example, if you had your gall bladder removed last year, you will not need it removed again this year and can lower your costs. Conversely, you should also consider if you have anything planned that would increase your medical costs such as a planned surgery or pregnancy.

The resulting amount should be the amount that you have deducted over the year. As you do this, be sure you take into account any increase in your co-payments or deductibles for the year. This will affect how much you actually spend. If your health insurance plan is changing, you will need to take that into account as you consider how much you need to have withheld.

If your childcare costs are changing, you will need to take this into account. For example, the costs may decrease if you have child starting school in the next year and you no longer need child care. You cannot receive a refund on the money that you have deducted to cover this expense, so it is often better to estimate low so that you do not lose the money completely. 

Submit Your Receipts to Human Resources

When you pay for your medical expense you will submit the receipts to your human resources department and then they will reimburse you the amount that you paid out of pocket. Your company may have guidelines on how often you can submit each month or a cut off time in order to receive the check for the month. Be sure to follow their policies to receive prompt payment. Some companies have begun using debits cards that allow you to pay for the co-payments or medical expenses with the debit card.

You can use your entire balance up at the beginning of the year, even if you have not contributed it all. It is important to track your spending, and stop using your debit card once you have reached the limit. 

Use Up Any Remaining Funds at the End of the Year

At the end of the year you should check to see if you have any money leftover. If you do, you should find ways to use it. It may be that you get the medical test you have been putting off done or you can purchase a very nice set of glasses with the money that you have left. You can also purchase over the counter medication with these funds. Check with your human resources department to be sure that the expenses qualify if you are trying to use up the last little bit of your money. Some people confuse a flexible spending account with a health savings account.

It is important to understand the difference between two. If you have a high deductible insurance policy, you will likely have the health savings account and money in that can rollover each year.