Tax-Free Money for Big Medical Expenses

My employer gives me until March 15 to use the money in my flexible spending account from the past year. What are some ways that I can use the money from 2009 before I lose it?

You can use money in your FSA for almost any medical expense that insurance doesn’t cover, such as co-payments, deductibles, and out-of-pocket costs for dental care, vision care and medicines (whether prescription or over-the-counter). People tend to go on last-minute spending sprees to clear out their accounts before the deadline. That typically includes stocking up on contact lenses, glasses or prescription sunglasses; getting teeth cleaned; filling prescriptions; or buying big bottles of pain relievers and over-the-counter cold and allergy medications.

But if you think big, you may have an opportunity to tap an extra-large pot of money before the deadline. That’s because you can use the full amount you earmarked for your FSA for 2010 starting on January 1, even though you haven’t actually contributed that much money to your account yet.

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Say, for example, you plan to contribute $3,000 to your FSA in 2010, and you still have $1,000 left over from 2009. That gives you $4,000 tax-free to spend now on a big-ticket item such as laser eye surgery or dental work -- even though you may have contributed only a few hundred dollars so far this year.

In most cases you can use the money for your dependents’ medical expenses as well as your own, even if they aren’t covered under your health-insurance policy. You can’t spend the 2009 money after March 15, but most employers will give you a few extra weeks after the deadline to submit the expenses for reimbursement.

See 7 Smart Uses for Your Flex-Account Money to learn more about eligible expenses -- including some you might not expect, such as smoking-cessation programs and doctor-prescribed weight-loss programs.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.