August 2007
Don’t lose money in flex plans
If your company offers a flexible spending account for your out-of-pocket health-care costs, go for it--but don't go overboard.
"We advise clients to make a good estimate of their expected expenses for the year for items that can be paid from the flexible spending plan, and then put in slightly less than the estimate," says Carl Camp, president of Eclectic Associates, a fee-only financial-planning firm in Fullerton, Calif. "We think it is better to pay slightly more in taxes than to lose money."
That is, flexible spending accounts are generally use-it-or-lose-it. If you put $5,000 into an FSA for your health-care expenses but wind up spending only $4,500 during the year, you've lost $500. (Companies can extend the deadline for 2½ months after the end of the plan year.) You would have been better off putting in $4,000, which you can use for health care, and paying the last $500 with after-tax dollars.
"If you are near the end of a year and see that you cannot spend all the money in the flexible spending account, look for opportunities to spend what's left," says Camp. "Can you move up a doctor's appointment into the current year from next year? Can you schedule an eye-doctor or dentist appointment now, rather than waiting until next year?"
"We advise clients to make a good estimate of their expected expenses for the year for items that can be paid from the flexible spending plan, and then put in slightly less than the estimate," says Carl Camp, president of Eclectic Associates, a fee-only financial-planning firm in Fullerton, Calif. "We think it is better to pay slightly more in taxes than to lose money."
That is, flexible spending accounts are generally use-it-or-lose-it. If you put $5,000 into an FSA for your health-care expenses but wind up spending only $4,500 during the year, you've lost $500. (Companies can extend the deadline for 2½ months after the end of the plan year.) You would have been better off putting in $4,000, which you can use for health care, and paying the last $500 with after-tax dollars.
"If you are near the end of a year and see that you cannot spend all the money in the flexible spending account, look for opportunities to spend what's left," says Camp. "Can you move up a doctor's appointment into the current year from next year? Can you schedule an eye-doctor or dentist appointment now, rather than waiting until next year?"
