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Last chance to use flexible spending accounts



For many people enrolled in workplace Flexible Spending Accounts, today is the last chance to use it or lose it.

If you don’t cash out the tax-free money you set aside for medical expenses not covered by insurance, every remaining penny reverts to your employer. About 3% of FSA users leave money on the table each year, and the average amount left is $45, according to Mercer consulting research.

You spend the money with a debit card, or submit for reimbursement after making an uncovered co-pay or shelling out for eyeglasses. The higher your tax bracket, the more you save. The deal is so good, that this year the government has cut off the ability to be reimbursed for over-the-counter products lacking a prescription, and announced that beginning in 2013, all FSA set asides will be capped at $2,500.

But many people fail to understand or have not been taught how to use their company’s FSA. Others find the reimbursement process cumbersome or their company websites impossible to navigate. The upshot? Only 23% of employees actually participate in FSAs when offered.

The hassle factor “can range from trivial to a royal pain in the neck,” acknowledged David Mendels, CFP, president of the NYC Chapter of the Financial Planning Association.

Here are some tips on how to use an FSA to save money, not waste it:

X Calculate your out-of-pocket medical expenses from last year. If you anticipate needing to spend the same amount out of pocket on drugs and medical services, set aside this amount, suggested Elaine E. Bedel, CFP, owner and president of Bedel Financial Consulting Inc. in Indianapolis.

X Underestimate – don’t overestimate – your out of pocket costs. “I’d rather pay taxes on money I have than no taxes on money I don’t have at all,” said Mendels.

X File for reimbursement of your expenses as you incur them. “In the event you’ve spent money that for some reason is not reimbursable, you become aware of that early,” and have time to supply requested documentation or submit new, eligible expenses, noted Bedel.

X Ask for help. Companies usually offer sign ups in the fall. If you have problems figuring out how to enroll in, or use, your FSA ask a colleague or a member of your firm’s HR department for info on how to enroll and submit for reimbursement.

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