Every year, one of the big part of picking out insurance options is deciding how much to fund the Flexible Spending Account (FSA), which sets aside money from your paycheck that you can use to pay medical bills. The advantage of using it is that the money is tax free, so you avoid paying taxes on whatever you contribute. The disadvantage is that the contributions are only good for the year, so if you don’t use all the money, it goes away.
This year I decided to contribute $600. With our tax rate that was going to save us roughly $100 on our taxes for the year.
I knew this amount would likely not cover our costs, but I wanted to be safe, so in addition to the contributions from our paycheck, I also set aside $40 per month into a sinking fund that would cover up to $480 throughout the year. If we needed money beyond that, we’d have to look at our options when we got there.
For the first two months of the year, it looked like we had vastly underestimated the needs, but that was largely because both kids went through various illnesses (bronchitis and ear infections) that required multiple trips to the doctor, multiple prescriptions, x-rays and other services.
Sure enough, things died down and we used a little here and there, and we finally hit the last of the money left just last week. This means we’ll have roughly two and a half months of medical expenses that we’ll have to pay out of pocket. There are always potential ill visits, but other than that, the biggest ones we’ll probably have are dental visits remaining for my wife and son as well as a few prescriptions.
How do you budget your FSA dollars for the year? Have you run out yet? How do you handle potential shortfalls?