insurance

Act Now to Make the Most of Your Flexible Spending Account

If you have money left over in your account, now is a good time to schedule doctors’ appointments or buy FSA-eligible items.

My employer changed our flexible spending account rules so we can now roll over as much as $500 in the account to the following year. In the past, we had a grace period until March 15 of the following year to use the money. Do we still have until March 15 to use the money?

Employers can’t offer both the $500 rollover and the March 15 grace period. Because your employer changed its plan to offer the $500 rollover, you must use the rest of the money in your account by the end of the plan year (usually December 31). Some employers offer the rollover, some offer the grace period, and some still require employees to use all of the money in their accounts by December 31 with no rollover. A survey of FSA administrators for more than 1,800 employers by FSAstore.com found that about 40% of the employers changed their plans to offer the $500 rollover, and about 34% continue to have the March 15 grace period for their FSAs. Double-check with your employer about its rules.

If it looks as if you’ll have more than $500 in your account by year-end, now is a good time to make some doctors’ appointments or stock up on eligible medical supplies to reduce your balance. You can use the money in your FSA tax-free for deductibles, co-payments and other expenses that aren’t covered by your health insurance, such as dental and vision care. It’s a good time to schedule a visit with the dentist, orthodontist, eye doctor or chiropractor; to buy eyeglasses or prescription sunglasses; to stock up on contact lenses and solution; or to buy prescription drugs with big out-of-pocket costs.

Jeremy Miller, founder and president of FSAStore.com, which sells items that are FSA-eligible, also has some timely recommendations for FSA money: flu shots, warm steam vaporizers, saline solution, nasal spray, and thermal-aid heating and cooling packs. You can also use FSA money for breast pumps, first aid kits, thermometers, bandages, athletic braces, blood pressure monitors, hearing aid batteries and prenatal vitamins. If you have a prescription, you can use FSA money for some over-the-counter medications, such as certain allergy, cold and flu medicines, antacids and pain relievers. See FSAStore’s Eligible Over-the-Counter Expenses for lists of eligible items that do and do not require a doctor’s prescription.

This is also the time of year to sign up for your employer’s flexible spending account for next year. The maximum contribution will remain $2,550 for 2016. If you have a health insurance policy with a deductible of at least $1,300 for individual coverage or $2,600 for family coverage in 2016, it’s usually better to contribute to a health savings account rather than an FSA. The HSA lets you make larger pretax or tax-deductible contributions ($3,350 for individuals in 2016 and $6,750 for family coverage, plus $1,000 if you’re 55 or older). You can use the HSA money tax-free for medical expenses in any year. Unlike the FSA, there’s no time limit for using the money, and you can roll over an unlimited amount in the HSA from year to year.

You generally can’t contribute to both an FSA and an HSA in the same year, although more employers are offering HSA-compatible FSAs, which you can use tax-free only for dental and vision expenses until you reach your health insurance plan’s deductible. See Can I Contribute to Both an HSA and an FSA? for more information about the rules.

For more information about the tax rules for FSAs and HSAs and eligible expenses, see IRS Publication 969.

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