I want to continue with my post last week about budgeting for a newborn. Last week, I raved about the Amazon Mom Account and the deal codes Amazon has had in recent baby magazines that when paired together have made some superb deals for diapers and wipes.
In addition to taking advantage of great money-saving opportunities like these I also had to re-evaluate my health care benefits at the end of 2010. This presented another opportunity to budget wisely for my growing family!
What am I talking about? The benefits of tax-advantaged savings plans offered through some employers. Fortunately enough my employer offers such plans.
Today, I am going to focus on talking about the basic definition of Medical Flexible Spending Accounts and Dependent Care Flexible Spending Accounts because these are great opportunities to save money when properly understood.
A Flexible Spending Account (FSA) allows an employee to use pre-tax dollars to pay for qualified expenses, most commonly for medical expenses but also for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes which can result in a substantial payroll tax savings!
The most common types of FSA’s are the Medical FSA (also known as a Health Care Flexible Spending Account) and Dependent Care FSA.
Both types are used to pay for expenses not paid for by insurance. The key to properly funding an FSA is to take an inventory of the known medical and dependent care expenses that your family will incur in the upcoming year and know whether or not those costs are “qualified” under the terms of the IRS.
This is very important because money deposited into an FSA is on a “use it or lose it” basis.
The IRS states that if your family does not use the funds deposited into the FSA over the course of the year up to the end of the grace period (March 15th of the following year) then any remaining portion will be forfeited.
Thus, it is very important to take the time to determine the costs you know you will incur and contribute to an FSA accordingly.
For examples of generally qualified expenses please visit IRS publication 502. The maximum annual limit for a single taxpayer contributing to an FSA is $2,500 per FSA. Married couples can contribute a maximum of $5,000. However, employers do have the right to reduce this limit.
My thought process is if I am going to match coupons with sales, shop clearance racks, bring my lunch (most days) to work all to save money then it would be silly not to take advantage of other great opportunities.
Please take the time to review the benefits your employer offers to see if you are potentially missing out on another way to save; savings by tax-advantaged opportunities! Below is an example of how the savings can really add up when you are able to use pre-tax dollars!