Chris O'Shea
If you’re looking for a way to save on medical expenses, a flexible savings account (FSA) might be the way to go. An FSA allows you to save with specific tax advantages. Here are the pros and cons of using an FSA.
First, how an FSA works: These accounts are only available through your employer (and not all employers offer them.) If your employer sets up an FSA, you can contribute a certain amount of your earnings before they’re taxed. That allows you to lower your taxable income. Your company can also contribute to your FSA. The annual contribution limit for 2023 is $3,050.
Now for the pros and cons of an FSA:
Pros:
-
Reimbursement for medical payments. Your pre-tax funds can be used to reimburse the costs of diagnoses, treatments, prevention methods, and more.
-
Cover loved ones’ medical costs. If you own an FSA, you can use it to cover the medical costs of your spouse and dependents.
-
Cover medical equipment. You can use your FSA to cover the cost of qualified medical equipment.
-
Reimbursement amounts for insurance deductibles. You can also use an FSA to reimburse yourself for deductibles, which is the money you spend for health care services before your insurance begins to pay.
Cons:
-
Lack of coverage. Not every medical cost can be paid for through an FSA. For example, you would not be able to use your FSA funds to cover any cosmetic surgeries.
-
Limited rollover. In general, you must use your FSA funds within the plan year. If you don’t use the money, it’s gone. There is some rollover, but right now it’s capped at $610 per year.
-
Not eligible for premiums. While an FSA can cover insurance deductibles, it can’t be used to cover insurance premiums.
Jean Chatzky
