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Smart Ways to Use Up Your FSA Before the Year Ends

·5-min read

A flexible spending account, or FSA, is a special savings account that can be used to help defray out-of-pocket health care expenses. These expenses might come from over-the-counter items that aren't covered by a prescription, as well as the difference between the billed cost of a medical product or service and how much an insurance company will reimburse. Families tend to see significant savings when planning for dental bills or specialist care.

Unexpected accidents can also be made less financially stressful when there's money hiding in an FSA. The 2021 limit is $2,750 per year per employer, and funds should be used during the same calendar year in which cash is set aside for this purpose. Although some employers will allow a grace period or a certain amount of funds (max $550) to roll over to the next year, you may want to get creative about spending down any available FSA balance soon. With just a few more weeks until year's end, now is the time to get creative about spending it down.

RELATED: FSAs Are a Use-It-or-Lose-It Way to Save Money on Medical Expenses—Here's What You Need to Know Before You Use Yours

Get over-the-counter items you were planning to get anyway

"Assuming that you did not need to go to the doctor or dentist much this year, you may have remaining FSA funds. There are numerous ways to spend these funds so that you don't forfeit your hard-earned income," says Annette Harris, a wealth coach in Jacksonville, Fla. From the generally permitted list of items, pain relief products are ones that most people buy anyway and completely forget to file under their FSA. It can cover products like Tylenol, acupressure sets, and even eye pillows, in addition to items like heating pads and injury prevention braces. Some of these items may require a doctor's note to justify, but many do not. "If you're still unsure about what to purchase, Amazon and Walmart have an FSA & HSA Shop that can help you narrow down how to spend your funds," Harris says. You might be shocked to see that items like first aid kits and prenatal vitamins are allowed.

Offset the pink tax for yourself and others

The pink tax isn't actually a tax, but the upcharges on feminine hygiene products and personal care products marketed to women can produce a significant financial burden. According to Bankrate.com, "The Pink Tax costs the average woman over $1,300 a year and impacts all aspects of daily life from shopping to dry cleaning." One area where an FSA can truly help is in purchasing menstrual care items—products that finally became qualified medical care items in 2020. Harris says that if these products are a constant in your life, "you can stock up on 'down there' care and ensure that you will eventually use your funds and the products." The advantage of using FSAs in this way is that even if you don't end up using these items yourself, you can stock them for houseguests and relatives, or donate them to shelters in need.

Schedule dental appointments through the grace period

Although the holiday season can be tough for scheduling major dental work, it may be a good idea to use up available funds as much as possible this year or to work with your dentist to ensure that appointments are scheduled appropriately during grace periods or extensions. (The typical grace period for an FSA is 2.5 months, meaning that if your plan ends in December you may still be elligible to use your funds through March 15 of the following year.) This would be particularly important for parents of kids who have long gaps due to holiday breaks and school vacations. Rather than taking off work or pulling them out of school for multiple appointments that conflict with classes, consider scheduling serial appointments that minimize both time and financial commitments.

RELATED: A Dependent Care FSA Can Help You Save Money on Childcare Costs—Here's What to Know

Double-check whether you have an HSA, an FSA, or both

"If your employer offers FSAs, you decide how much of your salary (up to a certain limit set annually by the IRS) you want to defer into the account, and your salary is reduced by that dollar amount," explains Colleen McCreary, chief people officer at Credit Karma. "Instead of paying you that money, your employer puts those funds into your FSA, so neither you nor your employer pays federal taxes on that money."

A health savings account, or HSA, she continues, "allows you to contribute a certain dollar amount each year to use specifically for eligible medical expenses. The money you contribute to an HSA is tax-deductible, and withdrawals are tax-free—as long as you use the funds for qualified medical expenses." She adds that some employers will even contribute money to your HSA every year to help subsidize your out of pocket expenses.

These two accounts might sound interchangeable when it comes to qualified medical expenses, but HSAs can also be used to invest and grow your money tax-free. "If you have a high-deductible health insurance plan, you may be eligible to contribute to a health savings account," McCreary says. Before the year ends, take a look at whether you have an HSA, an FSA, or both. When in doubt, talk with a financial planner about how to use your HSA balance to reach larger financial goals, that is, if you have no immediate medical needs on the horizon.

RELATED: Why An HSA Should Be Part of Your Retirement Plan

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