How to Use Up Your FSA Dollars Before You Lose Them

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Given that the year’s end is quickly approaching, a lot of you are likely making moves to get your finances in order before 2017. For those of you who have employer-sponsored health insurance plans, you may have contributed to a Flexible Spending Account (or FSA) in 2016. An FSA is a tax-advantaged account offered by employers in conjunction with certain health insurance plans. The idea is to help employees save, and pay, for eligible medical expenses.

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If you contributed to an FSA in 2016, you may have unused funds that you’re looking to spend. FSA plans are typically “use it or lose it, ” meaning that money not spent on eligible medical expenses will be forfeited at the end of year.

What Are The Rules of an FSA?

We will discuss how to spend your FSA dollars before you lose them. But first, let’s take a look at the official rules of an FSA.

Contributions to an FSA are limited within a calendar year. For 2016, it was $2, 550 and for 2017, it will be $2, 600. This is per person. So if you’re married, your spouse can also contribute $2, 600 into his/her employer FSA this coming year.

Contributions to an FSA are pre-tax. This means that the money is deducted from your paycheck before taxes are taken out. In this way, FSA contributions reduce your taxable income for that year. Employers may elect to contribute funds to your FSA as an additional benefit.

FSAs can only be used for eligible medical expenses. Want to know what qualifies? WageWorks has a comprehensive list of eligible medical expenses for FSA reimbursement. Please note that some items will require a prescription from a doctor. Also, FSA funds cannot be used to pay for health insurance premiums.

Generally, you must use all of your FSA funds by the end of the calendar year if you don’t want to forfeit the balance. There are two exceptions that employers can offer:

  • Employers can offer a grace period of up to 2.5 months, to allow you to incur additional expenses.
  • Employers can allow up to $500 to roll over to the next calendar year.

Your employer can only offer one of these exceptions, not both. Neither is mandatory, either, so be sure to check whether these are even offered at your job.

Given these rules, you can see how important it is to accurately plan how much to contribute to your FSA in a given year. The last thing you want to do is lose out on any of your money. So, what if you’ve found that you still have money left over in your FSA after taking care of your medical expenses for the year? Well, there are other things you can do with the money before you lose it.

Things to Buy With Your FSA Dollars

As mentioned, you should take a look at WageWorks’ list of eligible medical expenses for FSA reimbursement. Did you already spend money on some of those, but not realize you could file for reimbursement? Well, now is the time to submit those receipts.

Another website to check out is FSAStore.com. I’ve personally browsed this site to get inspiration on things I could use my FSA dollars for. In fact, this website only sells items that are FSA-eligible.

One thing to watch out for, though, is the prescription requirement. For example, I’ve purchased contact lenses with my FSA funds, later learning that I needed a current prescription in order to do so. Some things I’ve purchased from FSAStore.com include:

  • First aid kit
  • Eye care bundle
  • Travel neck pillow

Here are some other ideas of things you can spend your FSA dollars on:

  • Sunscreen – Do you have a summer vacation coming up next year? Stock up on high quality sunscreen for you and the family.
  • Baby supplies – Are you planning to have a baby in the near future? Buy those necessary items such as an ear thermometer and medicine droppers. You can also purchase prenatal vitamins without a prescription.
  • Home medical devices – If you have a specific medical condition that requires home medical devices, you can use your FSA dollars for that. For example, you could buy a blood glucose monitoring system if you have diabetes, or a blood pressure monitor if you have high blood pressure.

Resource: Flexible Spending Account Rules

Another thing that some people may overlook when it comes to FSA funds is travel for medical care. You can get reimbursed for your transportation to and from medical appointments.

How to Avoid Over-Contributing to Your FSA Next Year

Although contributions to an FSA save you money in taxes, those savings are debatable if you’re rushing at the end of the year to come up with ways to spend the money. Ideally, you’d contribute just enough to use your FSA funds for necessary medical expenses throughout the year.

To avoid over-contributing to your FSA next year, review your spending on medical expenses in 2016. How much money did you spend before you found yourself with extra money left in your account? That’s likely the amount you should set to contribute next year.

The exception is if you plan to have a major medical expense come up in the next year, such as a surgery or birth of a child. In that case, you’ll have to consider things like your annual deductible and copays. Then, you can determine how much more to contribute.

Final Thoughts

An FSA is a great tax-saving tool. If you’re eligible to contribute to an FSA and have been doing so, it’s a good idea to continue. Even if it means that sometimes you’ll contribute a little more than needed, the tax savings are worth it. Given the wide assortment of things that FSA dollars can be spent on, you’ll likely find some use for any unused funds at the end of the year.

Have you ever contributed too much to an FSA? What have been your favorite ways to “use up” your FSA dollars?

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