Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Flexible spending account and piggy bank

A flexible spending account (FSA) is an employer sponsored account that lets workers take a voluntary salary deduction each pay period and set those funds aside for medical expenses. The funds are not taxed and can be withdrawn for any qualified medical expenses.

To assist your FSA and save more money get free insurance rate quotes now!

Your employer may opt to contribute to your flexible savings account, or may simply give you the opportunity to do so. Read on to learn about the benefits, qualifications and funding of an FSA.

What are the benefits?

The main benefit of this sort of savings account is in the tax savings; however, there are others too. Benefits include:

  • Funds contributed by your employer are not taxed
  • Funds you contribute are not taxed
  • Funds, up to the maximum limit, must be available for your withdrawal at any point in the use year. This is true even if you have not yet invested that much money into the account.
  • Funds can be with drawn at any time for qualified medical expenses.

A final note about this type of health savings account is that any funds your employer contributes towards long term care insurance are going to be taxed as regular income.

Essentially, you or your employer funds this account and you save money by not being taxed on the funds. In most cases, joining is a no brainer. Almost everyone who is eligible can benefit from the tax savings. For some, however, other savings options will make more sense and some folks are simply not eligible.

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What are the qualifications and how do I fund my FSA?

To qualify for a flexible spending account you must work for an employer that offers the option. Frequently, this is part of cafeteria style benefits and you can select an FSA as part of your health benefits. It will not affect your health insurance rates or any other benefits of your health plan. In fact, you do not need to have health insurance at all to opt into an FSA.

There are limits on who in a company can enroll. Frequently any highly paid employees or those considered key employees (like the CEO or other top executives) are not eligible. Once you know you qualify signing up and funding your FSA is simple.

Each flexible spending account has a specific use year and you will need to sign up at the beginning of that time period. Someone in your company’s human resources department can give you this information. When you sign up you will need to designate the amount of money that you want to contribute each pay period.

Be very careful when selecting the amount to be with drawn from your pay check. You can not change this amount or opt out of a flexible spending plan easily. Unless you change jobs and go to another company, or have a change in family status, you are in it for the use year.

Also, funds contributed to your flexible spending account do not roll over into the following year. That means that any money you do not spend is lost. This is referred to as a use it or lose it policy. So it’s imperative that you carefully evaluate the amount of money you, or your family, typically spend on medical expenses. You’ll also want to ensure that you are only considering expenses the fund considers qualified.

There are other medical savings plans that allow you to keep and rollover unspent funds. These are called health savings accounts (HSAs) . They are somewhat different from flexible savings accounts and you can sign up for an HSA outside of work. However, you will have to purchase a high deductible health plan (HDHP) to be eligible. Get quotes on HDHPs using the free insurance quote tool on this page!

How does health insurance relate to this account?

As mentioned earlier, you do not need to have health insurance to sign up for a flexible spending account. With high health insurance rates making coverage a challenge for some, this is a great way to save some money and have funds set aside. Still, having health insurance coverage is important. If your employer doesn’t offer a plan that makes sense you should seek one out.

Research online insurance quotes with free third party rate tool offered on this page. You can obtain an affordable health insurance policy and enroll in the FSA offered by your employer for optimal savings. Finally, for more information on flexible spending accounts you can look at the IRS website or talk to someone in your company’s human resources department.
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