what is a fsa account

Imagine having a special account that lets you pay for doctor’s visits, prescription medications, and even sunscreen with tax-free dollars. That’s the basic idea behind a Flexible Spending Account, or FSA. If your employer offers one, it’s a powerful tool to help you manage healthcare costs more efficiently.

An FSA is an employer-established account that allows you to set aside a portion of your paycheck, before taxes are taken out, to pay for qualified medical expenses. Because the money goes in pre-tax, you lower your overall taxable income, which can put a little extra back in your pocket.

How an FSA Works: Your Money, Your Health

At the start of your plan year (often in January), you decide how much money to contribute to your FSA. The key thing to remember is the “use-it-or-lose-it” rule. This means you generally need to spend the money you set aside within that plan year, or you might forfeit the remaining balance. However, many plans now offer a grace period of up to 2.5 extra months to use the funds or allow you to carry over a limited amount (like $610) into the next year.

Common Expenses Your FSA Can Cover

You might be surprised by how many everyday health items are eligible for FSA reimbursement. Common approved expenses include:

• Co-pays and deductibles
• Prescription medications
• Dental and vision care (like exams, glasses, and contact lens solution)
• First-aid kits and supplies
• Over-the-counter items with a doctor’s note, such as pain relievers

Is an FSA the Right Choice for You?

An FSA is a fantastic benefit if you have predictable medical costs. If you know you’ll need new glasses, have recurring prescriptions, or are planning a medical procedure, it’s an excellent way to save money. The main thing to consider is estimating your expenses carefully to avoid losing any funds at the end of the year.

In short, an FSA is a simple yet effective way to make your healthcare budget stretch further. By planning ahead, you can use this account to take control of your health expenses and save on taxes at the same time.