Making the most of your flexible spending account
Credit card statements also can be good sources of
information about spending on FSA-eligible expenses.
"There are some credit card companies that will give you an annual breakdown of your spending by category," Kaufman says. "So if you use the same card for your co-pay and deductible, you could get a report of your spending at the end of the year."
And while you're searching for those forms and receipts,
make a vow to keep better records next year. Using personal finance
software such as Quicken or Microsoft Money is an excellent way
to track medical or dependent care spending, says Lyn Dippel, a
vice president with the financial planning and investment firm Financial
Advantage in Columbia, Md.
Set aside money for major work
Flexible spending accounts can be handy for more than small out-of-pocket expenses.
"FSAs are especially useful when you anticipate having a large medical procedure," says Michael Kresh, president of the Financial Planning Association, of Long Island, N.Y.
If you're considering laser eye surgery or purchasing prescription glasses, an flexible spending account could be a tax-free way to pay.
"It's a lot easier to put away $50 or $75 a week into
your FSA, instead of paying $1,500 a year at one time (for a major
out-of-pocket procedure)," Kresh says.
There are other tax remedies for people with extreme medical circumstances, but the medical bills must generally reach a certain limit.
"Taxpayers don't usually get a medical deduction unless their expenses exceed 7.5 percent of their adjusted gross income," Kresh says. "For example, if you make $50,000 a year, you get no deduction until you pay over $3,700 in out-of-pocket expenses."
By taking advantage of FSAs, you don't have to overcome that high barrier. Check with your tax adviser for more details.
Flexible spending accounts have another advantage over a standard tax deduction
-- quicker reimbursement.
"People may not know this, but if you have a large medical expense at the beginning of the year, you can still submit the reimbursement, even though your account balance isn't high enough yet," says Dippel.
This benefit is available to those with health care
FSAs. By contrast, you cannot ask for reimbursement from a dependent
care FSA until your contribution has actually been placed in the
Save all receipts
Always keep written proof of your expenses. Many companies now offer debit cards that can be used to pay for flexible spending account expenses, reducing the need to prepare claims paperwork. Although debit cards can be convenient, be sure to keep the receipts just in case your administrator has future questions about a particular expense.
"Have a system in place to store receipts, even if it's just a box on your dresser," Woody says. "My receipts go in my briefcase. At the end of the plan year, which for us is June, I can pull all those receipts together and make a claim. For me, 20 minutes of work per year generates a good deal of savings."
If you've been less organized than Woody, remember that employees now have a "grace period" of two and a half months after the end of the plan year to file claims. So, there is time to track down receipts if they're stuffed in the back of your desk drawer.