A preapproved benefits 'loan'
One FSA benefit, however, remains. You can get to the money even before it's in your account.
Say you elected to put $2,400 in your medical spending account with $200 a month from your paycheck. In early March, your son fell off his bike and, in addition to breaking his arm, all his expensive orthodontia had to be redone. When all the damage was added up, you faced $950 in deductibles not covered by your health insurance.
Although you only had $400 in your account when the accident occurred, federal guidelines allow you to submit your out-of-pocket expenses immediately for repayment. This way, you get cash now against the total amount you pledged to pay into the account. On the plan's books, your account will show a deficit that you will "pay off" each month until it's zeroed out and you start accruing reimbursement money again.
Just make sure you know your company's policy if you leave your job before you refill your FSA account. You could see any amount due taken out of your last paycheck.
Use it or lose it ... later
While the option to give employees more time to use FSA money is welcome, it doesn't change the use-it-or-lose-it component. It just means the possibility of wasting FSA money will simply be deferred. After the two-and-a-half-month extension, any unused money will be forfeited as before.
So before signing up for an FSA, carefully review your personal and family medical needs. A quick check of last year's medical costs is a good place to start.
"The biggest challenge for me is figuring out what my health care expenses are going to be from year to year," says Beverly Molnar, who also takes advantage of a dependent-care spending account offered by her employer, Penn State University. "Sometimes the health care expenses aren't quite as predictable as the child care costs."
Molnar remembers a time she did overestimate her medical expenses and faced the possibility of losing almost $1,000 left in the account. "The only thing that saved me was that my husband went into the hospital unexpectedly for surgery," says Molnar. She didn't use her account funds for his medical expenses (he has his own FSA); most of her excess FSA that year went toward Molnar's costs of staying at a nearby hotel while her husband recovered.
Molnar says she knows her FSA saves her some tax money -- she signed up at the urging of her tax preparer -- but she hasn't figured out exactly how much. But the account also has a side benefit. "It helps me budget a little better for health care, to keep track of what I'm spending," she says.
You also might get another way to make changes if you find you didn't do such a good job figuring your FSA amounts. A major change in your life -- marriage, divorce, birth of a child, reduction in work hours or job loss or change by your spouse -- will allow you to revise your FSA contributions.
But for most employees, those changes are rare. So take the time to make sure you maximize this valuable company benefit.