By In Do the Math, Flexible Spending Accounts (FSAs)

As the Grace Period Deadline Approaches, Remember: FSA Funds are ‘Use-It-or-Lose-It’

As of this posting, there are seven days left in the most common “grace period” for using your 2018 FSA funds — that’s March 15, 2019. For those who don’t have a health savings account (HSA) but do have a flexible spending account (FSA) tied to their health insurance, you hopefully know that if you don’t spend your tax-deferred contribution by the end of the year or, if you’re lucky, the end of the “grace period” for the year, those funds are gone. They’re not gone gone, like totally disappeared. They’ve just been reclaimed by your employer and are no longer available to you.

So…in the short run, use those funds! And in the long run, make sure you’re calculating properly what you may or may not use in a given year. More details after the break.

First, for those who are still confused about the difference between HSAs and FSAs, here’s the short answer: An FSA is tied to any number of traditional plans like PPOs and HMOs and enable you (and your employer) to contribute to a pre-tax amount to be used for medical expenses of many kinds, and if you don’t use the amount you’ve set aside by the end of the plan year or a predetermined “grace period” date, you lose those funds and start from scratch again in the new plan year; An HSA, by contrast, allows the funds to be rolled over from year to year, so you can accumulate that money and even invest it over time, but they’re only available with qualifying high-deductible health plans, which generally mean you’re going to pay more out of your own pocket when you have medical expenses.

A growing number of people have access to an HDHP with HSA but millions of Americans still have an FSA, or only have access to FSA-eligible plans through their employer. If that’s the case, an FSA isn’t going to be an active part of your retirement plans but it could help you save some money if you plan to have medical expenses each year. That’s because, as I mentioned above, the funds are taken out of your paycheck pretax. You can do the same thing as a tax-deduction at the end of the year if you want to save your receipts and don’t want to hassle with an FSA, but I digress…

All FSAs are individual accounts and the contribution limit for 2019 is $2,700. This amount can be used for more or less the same kinds of things for which HSA-holders can use their funds. Here’s a list of FSA-eligible items on a website called FSAStore.com. The people who run that site also run HSAStore.com, both of which are intended as repositories for items that are all eligible for one of the two health-expense-related accounts — anything you find on the sites is “eligible,” no guesswork required on your part.

The site also has some good tools, like the list linked above as well as a calculator that tells you how much you might save by buying things using FSA funds (spoiler alert: it’s close to $1,000 if you’re maxing out your contribution and using all of it annually…which you would only do if you have to, right?).

But…

The prices don’t really compare and may actually end up costing you more than other sites or stores. I found pretty consistently higher prices compared to identical items available on Amazon (3/20 UPDATE: Amazon now has an HSA store) and roughly the same prices as CVS’s website, though that was before accounting for shipping costs. The FSA Store doesn’t offer free shipping for orders under $50, it seems, while Amazon is free with Prime and has other options if you’re not in a rush, and CVS’s free-shipping threshold is $35 and, of course, not applied if you’re purchasing in-store.

Here is just one example of price differences. The item is a Neutrogena Light Therapy Acne Treatment Mask.

Here are cost breakdowns:

FSAStore.comAmazonCVS Online
$39.99 $28.00 $39.99
+ Shipping TBD+ free shipping w/Prime+ free shipping

Your tax savings for purchasing with an FSA is going to be 15-25% on average, so buying from the FSA Store is going to cancel out that savings in most cases. One major caveat is that you need a credit card of some kind to purchase from Amazon, so you will need an FSA card, which most accounts come with these days, to pay for FSA-eligible items with FSA funds in real-time. Otherwise, you’re doing it the way I had to do 15 years ago when I had an FSA, which was to save receipts and get reimbursed at the end of the year.

One other note: As I was searching for items on CVS, I saw an “FSA-eligible” badge appear in search results.

Whatever you do with your FSA and whichever approach you choose to take, be very conscious of how much you’re contributing. Unlike an HSA where you want to contribute as much as you can to get the full savings and investment potential, with an FSA you don’t want to contribute a penny more than you plan to spend, because any excess is lost. So sit down and do as much figuring as you can. And if you’re not sure what you may spend this coming year, just pick the smallest number you think is reasonable and go with that. If it happens to be $0, it’s not a huge loss to you or your savings goals.

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