Flexible spending account

From Debt Free Dude
Jump to: navigation, search

A flexible spending account is a way to set aside money from your paycheck pre tax that you plan to use for medical expenses. For example, if you have a family medical deductible of $1200 you can have $100 taken out of your paycheck each month and use that money to pay the deductible without using after tax money.

The disadvantage of an FSA account is that you usually have no investment options and the money will disappear at the end of the year if it isn't used. Health savings accounts are another option that accomplishes the same thing, but are a bit more advantageous because they do roll over year to year. If given the option, most individuals would be better off with a health savings account because of the roll over capabilities.

FSA accounts require you to guess how much medical care your family will need in a given year. Unfortunately the times when you most need the money are the times where you are least likely to have guessed you need it.

There is one advantage of FSA accounts. Usually the money becomes available before it is taken out of your paycheck. So if you setup to have $1000 put in the account starting on the first of the year, you can spend the full $1000 in January before the money has all been taken out of your paycheck. In that sense it is like a loan that you pay back with payroll deductions over the rest of the year.