Flexible Spending Closed out at a Profit
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FacebookI was just going back and closing out some of our old accounts the other day when I noticed that this year was particularly profitable with regard to our flexible spending account (FSA). Not only did we shield a good bit from taxes, but we also ended up clearing $800 in straight up profit. That’s right, since FSAs allow you to take money out faster than you put it in, it’s possible to come out ahead if you leave your job. In our case, we set aside $2400 for medical expenses, and we cashed in the full amount by mid-year. And by the time I switched jobs, we had only paid in two-thirds of that amount. This has actually happened to us in the past, and I’ve long since gotten over the guilt of profiting at my (former) employer’s expense. After all, the use-it-or-lose-it nature of FSAs means that they’re a losing a bit on us, but pocketing a ton on all the people that set money aside but didn’t get around to using it all up.
Published on November 21st, 2006 - 8 Comments
Filed under: Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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Before anyone notes that you took money that “wasn’t yours,” (technically) had you not used it before the end of the year you would’ve surrendered it back without any apologies from your company.
Comment by jim — Nov 21st 2006 @ 7:29 pmYep, and those surrendered dollars are basically used to balance out cases like mine. It’s not a terribly fair system, but that’s the way that it works.
Congratulations! It’s nice to see the system benefiting us rather than working against us as it usually does. When I was researching the FSA for an article, I ran across this sad statistic from Bankrate.com:
Studies by benefits specialists regularly show that employees typically forfeit more than $100 each year in flexible medical accounts.
Comment by moneysmartlife — Nov 22nd 2006 @ 1:54 amIf you’re *really* looking for flexibility and tax-avoidance, go for a Health Savings Account. It’s basically a savings account only for health care costs, but the biggest benefits are that it is 100% yours from day 1 and it grows from the interest.
I think most people can put in about $9k/year, but that adds up fast if you can get it in early. My wife and I have a goal of putting about $15k in ours and letting it ride for a couple decades.
Comment by Keith Casey — Nov 22nd 2006 @ 10:47 amI did not know how the system worked, and sent back the extra money! What a dope I was….
Comment by sunny — Nov 28th 2006 @ 7:41 pmI lost a coupla grand in a childcare FSA (long story); glad that someone made out on the other end.
Comment by Hieronymus — Dec 7th 2007 @ 2:24 pmWhat if an employee has not had enough claims and has an excess amount in his account at the time he is terminated from employment by his employer, who get the funds?
Comment by Ken Bogard — Dec 5th 2008 @ 10:57 pmWhat about tax ramifications? Could the excess distribution be considered income? We’re in a similar situation this year and want to cover our bases before tax time.
Comment by Nick — Nov 11th 2009 @ 12:43 pm