As the year comes to a close, many of us are looking at ways to make the most of our finances. One area that often goes overlooked until deadlines are approaching is our Flexible Spending Accounts (FSA). FSAs are a great way to set aside pre-tax dollars for medical, dental, and vision expenses, but they may come with a “use it or lose it” provision, meaning any unspent funds don’t roll over into the next year.
In fact, Money.com reported in 2022 that an estimated $3 billion in FSA funds go unused every year. And where does that money go? Back to the employer.
However, if used wisely, contributing to an FSA is a great way to make your money go a little further. Let’s just make sure you’re using it!
Understanding FSA Spending Deadlines
Most FSAs operate on a calendar-year basis, with the deadline to use funds typically set for December 31. However, some employers offer a grace period, usually extending into March of the following year, while others may allow a limited rollover of unused funds into the next year (up to $610 in 2024, according to IRS regulations). It’s essential to check your plan’s specific guidelines, as these options vary.
With the December 31 deadline looming for many, now’s the time to review your account balance and make sure you’re not leaving money on the table.
Eligible FSA Expenses
FSAs cover a wide range of medical and health-related expenses, including but not limited to:
- Medical Care: Doctor visits, hospital fees, and copays
- Dental Care: Cleanings, orthodontics, and procedures
- Vision Care: Glasses, contact lenses, and eye exams
- Over-the-Counter Medication: Pain relievers, cold medicine, and allergy treatments
- Preventative Care Items: Sunscreen, first aid kits, and thermometers
- Health Devices: Blood pressure monitors, glucometers, and some health apps
Eligible expenses also include some costs associated with managing chronic health conditions. And with the passing of the CARES Act in 2020, FSAs now cover menstrual care products and more over-the-counter medications, which can be an easy way to spend down your FSA balance.
Making the Most of Your FSA Balance
If you have funds remaining and no major health purchases planned, consider these ways to use your FSA dollars before the year’s end:
- Routine Appointments: Schedule any routine check-ups, dental cleanings, or eye exams that you might have postponed.
- Refill Medications: Stock up on prescription medications or over-the-counter products.
- Buy Health Essentials: First aid kits, thermometers, and home health devices are valuable, especially in the colder months when flu and colds are more common.
- Specialized Treatments: Consider purchasing health-related items that support wellness, such as compression socks or ergonomic equipment if they qualify under your plan.
Adjusting Next Year’s Health Savings Contributions
Year-end is also the perfect time to reassess how much you contribute to your FSA each year. If you’re scrambling to spend this year’s funds, it might be worth lowering next year’s contribution slightly. Conversely, if you maxed out your FSA by midyear, it could be beneficial to increase next year’s contributions—especially if you anticipate more medical expenses.
Consider the following as you set next year’s FSA contributions:
- Your Anticipated Expenses: Did you overestimate or underestimate your medical needs this year? Adjusting based on this year’s actual spending can help you set a more accurate amount.
- Life Changes: Any changes in family status (like marriage, divorce, or a new child) can affect your FSA eligibility and the amount you may need.
- Employer Offerings: Review whether your employer offers a grace period or rollover option, as this flexibility may influence your contribution decision.
Is an HSA a Better Fit?
For those eligible, a Health Savings Account (HSA) can offer more flexibility and even allow for investment of funds. HSAs differ from FSAs in that they’re tied to high-deductible health plans and do not have the “use it or lose it” provision, meaning the funds roll over year after year. HSAs are often recommended for those looking for long-term savings options alongside short-term medical expenses.
Strategic Health Spending
Your FSA is a powerful tool for managing healthcare costs, but it requires planning and awareness of deadlines. Whether you’re using up this year’s funds or planning for next, remember that these accounts can save you money if used wisely.
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