By Darla Mercado, CNBC
The money you've been diligently saving in 2019 is about to vanish.
Health-care flexible spending accounts allow workers to put away money on a pretax basis and use it throughout the year for qualified medical expenses.
As always, there's a catch: If you saved in one of these accounts last year, you often had until the end of 2019 to use the balance.
Employers may choose to allow workers to carry over $500 into the new year. They may also give them up to March 15 of the following year to use the remaining cash.
Be aware that your company isn't required to offer you those options.
In 2018, nearly 3 in 4 companies with 200 or more employees offered these FSAs, according to data from the Kaiser Family Foundation.
Employees lose as much as $400 million annually in unused balances, the health website FSAStore.com found. Those forfeited sums are recaptured by the plan and used to cover its expenses.
"It's really about understanding what your ongoing needs are, being focused on that expense and deciding where the dollars could best come from," said certified financial planner Diahann Lassus, CPA and co-founder of Lassus Wherley in New Providence, New Jersey.
Tax advantages
Last year, you were able to save up to $2,700 in your FSA. That number went up to $2,750 in 2020.
These accounts are different from other tax-favored benefits you might find at work.
For example, the dependent care FSA allows you to save up to $5,000 on a pretax basis to help cover the cost of care for children under age 13. You're also required to use that money by the end of the year.
Health-care FSAs share some similarities with health savings accounts. For instance, HSAs are also funded on a pretax basis and you can take distributions to pay for medical expenses.
Here's the main difference: While the FSA funds must be used by a certain date, you can invest and grow your HSA for many years.
In fact, you can tap your HSA for retirement health-care costs.
HSAs are paired with high-deductible health plans. But you don't need a high-deductible health plan to participate in an FSA.
Best use of your cash
Think strategically about the best use of your FSA dollars.
For instance, if you're making those early in the year check-ups with your doctors, now might be the time to update your prescriptions or get that new set of glasses — and use your FSA money to do so.
Other eligible expenses include laser-eye surgery, smoking cessation programs and weight-loss plans — as long as your doctor diagnosed a need.
Dental work, braces and clear teeth aligners are also FSA-eligible.
Other eligible expenses include massage therapy, acupuncture and chiropractor work. However, your doctor will need to draft a letter of medical necessity, showing that these therapies are necessary for treating a medical condition.
If you're constantly scrambling to use up your FSA, it might be worth rethinking your funding strategy and how it matches with your medical needs.
"That's part of the challenge," said Lassus. "If we don't have a real idea of where the dollars will be used, maybe it's not such a good idea."
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