Flexible Spending

Investing in a flexible spending account (FSA), a cafeteria plan, or a 125 plan at work reduces your pretax income and stretches your health care dollars.

If you have any funds remaining in your FSA, make sure you use them up before December 31. The “use it or lose it” provision prevents you from rolling any unused money in your account over into the upcoming year, so don't let Uncle Sam have it!

Ask your benefits coordinator at work how much money you have left in your account. Then, pull together your bills for medical and daycare expenses, figure out what you haven't yet been reimbursed for, and apply to get your cash.

The IRS has been adding to the number of procedures and expenses that an FSA can cover. For a complete list, download IRS Publication 502, or call the IRS at 1.800.TAX.FORM for a paper copy.

Of course, you should first ensure that your doctor will approve a particular treatment for you. And obviously, double-check your FSA plan provisions to make sure what you intend to do is covered beforehand.

If you ended up with too much or too little in your FSA this year, or if you've always wanted to start one but didn't know how much you needed to put aside, below are some budgeting tips for you to follow.

  1. Go back over your receipts for the year and total up the amount you've spent out of pocket on health care expenses like co-payments for office visits, prescription costs, and deductibles.
  2. Check with your employer to see if your health insurance plan is increasing your share of fees or co-pays next year, and add any resulting amount to your total from step 1.
  3. If you anticipate any one-time expenses, like special surgery or dental care, you'll need to factor in any portion of the costs that your primary insurance will not cover. You can check with your doctor to get an estimate.
  4. For emergencies, estimate an additional $50 or $100 for each member of your family.
  5. Divide your grand total by the number of paychecks you receive each year in order to determine the amount of pretax salary you will need deducted each pay period.
  6. Be sure to fill out the proper paperwork with your Human Resources department.