Consumer-Directed Health Plans 101:
4. Flexible Spending Accounts (FSAs)
A healthcare FSA is another type of reimbursement account offered by employers. It allows you to set aside money from your paycheck before taxes to pay for your family's healthcare costs during the year. You decide how much to set aside in your FSA. Because you’re spending pre-tax money on healthcare, you’ll pay fewer taxes and end up with a higher portion of your salary to spend on other things.
Expenses eligible for reimbursement from an FSA usually include any health-related costs not covered by insurance (deductibles, coinsurance, copays, and so forth). Most FSAs also allow reimbursement for over-the-counter medical products, dental and vision care, hearing aids, and other IRS-approved medical expenses. For examples, see this list of FSA-eligible expenses.
FSAs have a “use it or lose it” rule. That means if you don’t use your money by the end of the plan year, it can’t be carried over or refunded. Because of that, it's important to plan carefully how much you'll need to set aside in your FSA based on your expected eligible expenses.
FSA highlights:
- FSAs are funded by you through payroll deduction.
- Money you put in is tax-free.
- Your employer sets the rules about what expenses are reimbursable with your FSA funds.
- You can't take the money with you if you leave your current job.
Next, our at-a-glance comparison shows HSAs, HRAs, and FSAs side by side.
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