As the year draws to a close, it’s crucial to take a strategic approach to your Flexible Spending Account (FSA).
With the IRS announcing a $150 increase in the FSA contribution limit for 2024, reaching up to $3,200, it’s more important than ever to understand how to optimize these accounts.
Here’s a guide on how to make the best use of your FSA and what to do if you have funds left as the year ends.
What is a Flexible Spending Account?
An FSA is a special account you put money into that you use to pay for certain out-of-pocket health care costs. Money contributed to an FSA is not subject to federal income tax, Social Security tax, or Medicare tax, making it a savvy financial choice for eligible healthcare expenses.
Maximizing Your FSA Contributions
Understand Eligible Expenses
FSAs cover a wide range of expenses, including:
- Routine checkups or visits with specialists that regular insurance plans do not cover
- Dental and vision care, including orthodontics, implants, or extensive dental work that goes beyond routine care.
- Prescription eyeglasses
- Over-the-counter items like allergy products, sunscreen, and vaporizers
Big ticket medical items that can be covered by FSAs
- Elective Surgeries: Procedures like Lasik eye surgery or certain orthopedic surgeries that aren’t covered by regular health insurance.
- Hearing Aids: High-quality hearing aids and related maintenance costs can be significant.
- Medical Equipment and Devices: This can include durable medical equipment like CPAP machines for sleep apnea and wheelchairs or specialized medical devices like diabetic monitoring equipment or blood pressure monitors.
- Physical Therapy and Rehabilitation: Long-term or intensive physical therapy sessions for recovery from injuries or surgeries.
- Fertility Treatments: These can include in vitro fertilization (IVF), fertility medication, and related procedures.
Other big ticket items could include fertility treatments, including IVF and medication as well as mental health services, including psychiatric and psychological Counseling. It’s important to note that the eligibility of these expenses can vary based on your specific FSA plan and the rules set by your employer. Always check with your FSA provider or human resources department for the specifics of what’s covered under your plan.
Before enrolling, anticipate your healthcare expenses for the year. Consider routine checkups, specialist visits, and any big-ticket medical items you might need.
If your plan allows, your employer can contribute to your FSA, and if you have a spouse with a plan, they can also contribute up to $3,200.
Handling Unspent FSA Funds
With only two weeks left in the year, it’s vital to use your FSA funds wisely. Here’s what you can do:
- Stock Up on Supplies: Purchase eligible items like first aid kits, prescription medications, and other healthcare essentials.
- Schedule Last-Minute Appointments: Use your FSA for any outstanding dental, vision, or medical appointments.
- Carryover Option: Check if your plan allows carrying over unused amounts. For 2023, the maximum carryover amount to 2024 is $610.
- Contribution Limits and Carryovers: Remember, for 2024, the contribution limit is $3,200, and the maximum carryover amount to 2025 is $640.
Wrapping Up: Smart Strategies for FSA Optimization
An FSA is a valuable tool for managing healthcare expenses. By understanding eligible expenses and planning accordingly, you can maximize the benefits of your account. As the year ends, make sure to use any unspent funds judiciously, keeping in mind the carryover limits and contribution increases for the upcoming year.
For more information, review the IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Remember, employers are not required to offer FSAs, so check with your employer to see if they offer this benefit.
If you have questions, contact us to discuss your situation.
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