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Tips for using your flexible spending account

By Gregg Newby, Staff Writer, myOptumHealth

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1. Know how it works. Every flexible spending account (FSA) is different. What one policy allows another one doesn't. Read through your manual carefully. There may be some rules you are not aware of. The IRS has a list of approved expenses, but don't assume your employer's will be the same. Always double check before you make purchases. Follow the guidelines so you don't get penalized.

2. Know how much you need. Depositing the maximum amount is only a good idea if you have a lot of expenses. Remember, the money you put into an FSA has restricted uses. Don't wind up with too much in the account at the end of the year. If you do, you'll be racing around to buy stuff you don't really need. Instead, go through last year's bank records and see how much you spent out of pocket. A similar amount will probably do for this year, too.

3. Develop a spending strategy. This will help you avoid losing excess funds at the end of the year. You can either spend as you go, or let the money build up. It's probably better to spend it, unless you're saving up for something your insurance doesn't cover. Maybe you'd like to get LASIK eye surgery or your kids need braces. Whatever you decide, make sure you schedule those appointments before December rolls around. Medical providers almost always have full calendars at the end of the year. Everyone else with an FSA is trying to spend it down, too. If no one can squeeze you in, you might end up losing your balance.

4. Pay attention to your spending deadline. Some FSAs require you to use all your money by December 31. Others come with additional grace periods that can run all the way into May. Whatever money is left in your account after that goes back to your employer. Know what your deadline is and schedule your appointments well in advance of it.

5. Keep your debit card in a separate place. Many FSAs give you the power of plastic. But you don't want to accidentally misuse it. If you get a debit card, put it somewhere other than your wallet. If you accidentally use it at the gas station or movie theatre, there could be penalties down the road

6. Keep your receipts. They are your proof you spent the money correctly. They will help back up your claim if anyone audits your account. They are also a good indicator of how much you'll need to set aside next year. Use them to plan ahead and figure out your spending strategy. That way the money will be there when you need it.

View the original Tips for using your flexible spending account article on myOptumHealth.com 

SOURCES:

• Pilzer PZ. The New Health Insurance Solution: How to Get Cheaper, Better Coverage without a Traditional Plan. Hoboken, NJ: John Wiley & Sons; 2007.

• Konrad, W. Making the most of flexible spending accounts. New York Times. January 30, 2009. Accessed: 05/29/2009

• Block S, Chu K, Waggoner J. The Busy Family's Guide to Money. Berkeley, CA: NOLO; 2008.