If you have money in your 2011 Flexible Spending Account, you have just a few days to use it or lose it for good. Most FSA plans allow employees to use any funds in their accounts through March 15th of the following year. After that, if there is any money left in your plan, you forfeit it.
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About half of participants forfeit an average of $75 at year-end, according to WageWorks, Inc., a provider of tax-advantaged programs. In those cases, it may not be a big chunk of cash, but it’s still basically like throwing it away. And some participants may have larger balances if their medical expenses were smaller than expected.
Worse, the “use it or lose it rule” may be one of the reasons only one in five private sector employees and one in four public sector employees sign up for these plans. Flexible savings accounts allow workers to use pre-tax dollars to pay for qualified medical and/or dependent care expenses. They can also be a helpful budgeting tool for out-of-pocket medical and dependent care expenses, since contributions are taken out of employee’s paychecks over the course of the year.
Why are left over funds forfeited? “It’s an IRS rule, not a law,” says Jody L. Dietel, Chief Compliance Officer for WageWorks, Inc. The rule was designed to prevent highly compensated employees from essentially shifting money to deferred compensation. But starting in 2013 there will be an annual cap of $2500 on health savings account contributions, which makes that concern obsolete. Groups are urging a change in the rules so that employees can cash out unused funds or roll them over to use for future health care expenses.
[Related Article: Making the Most of the Perks at Work: Part One]
In the meantime, if here is money left in your 2011 FSA, find out whether your employer allows you to spend it through March 15th. If so, you may want to fit in a quick trip to the dentist, chiropractor, physician or eye doctor. Or stock up on contact lens solution or allergy medication. You can even use your Health Savings Account to reimburse you for mileage to and from medical appointments. A list of qualified expenses is available at SaveSmartSpendHealthy.com.
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Weigh in: If you’d like to see more commonsense FSA rules, find out how to make your views known at SaveMyFlexPlan.org. In addition to information on how to contact your legislators, you’ll also find a calculator you can use to estimate what the reduced contribution limits may cost you in tax savings.
Listen to the Podcast: Want to learn more about how a Flexible Spending Account can save you money and boost your budget? Listen to an interview with financial expert Manisha Thakor, below. Simply right click on the title below, and either save the file to download to your mp3 player or open it to play it on your computer.
Image: gadl, via Flickr