November is typically open enrollment time for millions who get health insurance, disability insurance and other benefits from an employer. If you’re one of them, among your important choices is whether you want a flexible spending account and how much money to deposit.
FSAs are available through some employers as a part of benefits packages. You can spend FSA money only on “qualified medical expenses,” which are determined by the IRS. The money comes out of your paycheck pretax, in regular increments. The full amount you pick is available at the beginning of the year, so if you have big health care expenses in the early months, your total FSA money is already accessible.
Unlike a health savings account, where the money you add is yours forever, the money in an FSA is “use or lose.” Any leftover money goes back to the owner of the plan, most likely your employer, “to offset administrative expenses,” says Jody Dietel, chief compliance officer at WageWorks, a group that provides employer benefits.
However, IRS rules make the use-or-lose deadline flexible. Many employers let you carry over as much as $500 in unused funds for up to a year. Other employers might offer a grace period, in which you can spend the unused money in the first 75 days of the next plan year. Ask your benefits administrator whether your employer offers either of these options before deciding on your final contribution.
Deciding how much to put into an FSA each year is important because you risk losing money if you put in more than you can spend. If you undershoot your amount, you lose out on the advantage of having the pretax funds.
The FSA contribution limit in 2017 will be $2,600, or about $217 per month.
If your medical expenses are straightforward, here are two easy rules of thumb for choosing an FSA amount:
Check your health plan’s summary of benefits to see if your share of costs will rise next year, advises Lea Reyes, vice president of client services at Delta Health Systems, an employer benefits firm. “Typically, employers will increase your share of these costs” each year, Reyes says. If your deductible, copays or coinsurance are going up, adjust your FSA amount accordingly.
Medical expenses can be unpredictable for those who have a chronic medical condition, a big family or kids in sports, or who may welcome a baby in 2017. Add more to the FSA if you’re not already planning to max it out.
If it’s the end of the year and you have unspent FSA money, here’s what you can do:
One last reminder: Many FSAs now have debit cards, but save your receipts in case a charge is rejected and you need to prove your expense.
This article was written by NerdWallet and was originally published by The Associated Press.
The article How to Choose the Right Amount for Your FSA in 2017 originally appeared on NerdWallet.