FSA Savers Risk Forfeiting $1 Billion in Healthcare Spending Dollars

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  • Flexible spending accounts let you set aside pre-tax dollars for medical expenses.
  • If you don't use up your balance by your plan year's deadline, you risk forfeiting leftover funds.

Don't let your money go to waste.

Healthcare is an unavoidable expense that can eat up a lot of our earnings. That's why it pays to take advantage of a flexible spending account (FSA) if your employer makes one available to you.

With an FSA, you allocate a certain amount of money (up to an annual limit that can change from year to year) for medical expenses you think you'll incur in the course of a year. Your FSA is then funded with pre-tax dollars, which are deducted from your earnings, allowing you to save money in the process by not paying tax on some of your income.

The tricky thing about FSAs, though, is that they require you to estimate your upcoming medical expenses in advance. Once you decide how much money to fund your FSA with for the year, you can't alter that amount unless you experience a qualifying event like the birth of a child. If you overestimate your healthcare spending needs, you could end up forfeiting the unused money in your FSA.

Many FSAs come with a grace period, so if you don't deplete your balance by the end of the year, you get extra time to use it up. If your plan has a similar feature, you might still have a little time to spend the remainder of your 2021 FSA funds.

But don't wait; many FSA grace periods expire on March 15, which means you only have a short window of time to use up your balance -- or risk losing it for good.

Don't let that money go to waste

FSAstore.com estimates that savers could lose as much as a collective $1 billion in 2022 due to forfeited FSA funds. And you don't want to be a part of that.

If you're sitting on leftover money in your 2021 FSA, it's important to check your grace period's deadline. There's a good chance it's March 15, in which case you have little time to deplete your balance.

That said, a temporary rule allowed employers to extend the grace period for using 2021 FSA funds to December 31, 2022. Not every company adopted that change, but if yours did, you get extra time to spend down last year's balance. However, if your company didn't adopt that change but has a grace period, then chances are, you'll need to spend your money by March 15.

How to use up your FSA

At this point, you may only have a handful of days to spend your remaining FSA balance. And that means it may be too late to schedule medical appointments or procedures.

But what you can do is try to renew some prescriptions early, if your health insurance plan allows for that. Another option is to stock up on over-the-counter supplies that are FSA-eligible. These include things like thermometers, bandages, ointments, and even sunscreen.

Plus, if you wear eyeglasses or contact lenses and have a valid prescription, you can restock your lenses or order a spare pair of glasses. FSA funds can also be used to purchase prescription sunglasses.

FSAs are a useful tool. They allow you to enjoy some tax savings, and they can make healthcare expenses easier to manage. After all, if you're consistently funding an FSA, it means you may not have to dip into your regular savings account when a larger medical bill arises. But the downside of FSAs is that there's the potential to forfeit money, so pay attention to your plan's deadline and do your best to use up your money before it arrives.

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