Many employers these days offer something called a Flexible Spending Account, or FSA for short.  What this basically does is allow you to set aside money for healthcare expenses, in a pre-tax manner.  Meaning, if you set aside $2,000 for expected health costs, that amount of your income will not be subject to the federal income tax.  If you’re in the 28% tax bracket, that’s a savings of $560.  Health care is expensive these days, and any opportunity to save money in that area is a no-brainer, right?  Well, no.  See, the FSA has a funny little clause known as the “Use it or lose it” clause.  Basically, at the beginning of the year, you determine how much you’ll set aside and contribute to your FSA.  The funds are taken right out of your paycheck and put into the fund.  If you end the year with any money left in the fund, your employer keeps it.  Not exactly a good use of your money, now is it?

Who should use an FSA?

If you or one of your family members has a chronic condition that requires expensive doctor’s visits and medication, then you’re a prime candidate.  If you know that you spend $200 per month in prescriptions, in addition to monthly visits to the doctor, then you know that you’ll use the money in your FSA, and benefit from the non-taxable nature.  Basically anyone with predictable health care costs should consider it.

Who should skip the FSA?

Anyone else.  I hate the “use it or lose it” concept.  If I contribute $2000 for the year, but only use $800, why in the world should my employer keep the balance?  It’s my money, after all.  I don’t want to bet on myself getting sick / hurt.  It’s almost as if there’s a penalty for being healthy - not a concept I’m on board with.  If, and only if, this faulty clause goes away, should everyone else contribute to the FSA.

If your employer offers an FSA, do you participate?  I’d love to hear why yo do or don’t, below in the comments.

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