Many workers lose unused FSA money — but could still come out ahead. Here's how
While experts say it's best to use up your FSA money, the tax savings on your contributions could outweigh any amount you forfeit. Here's how to tell.
The issue of unused Flexible Spending Account (FSA) funds is a perennial one, with many workers losing out on money they've contributed to these accounts. However, as experts point out, it's not always a straightforward loss. The tax savings on FSA contributions can sometimes outweigh the amount forfeited, making it potentially beneficial to contribute to an FSA even if not all the funds are used.
This dynamic is particularly relevant in the context of employee benefits and tax-advantaged savings vehicles. FSAs allow workers to set aside pre-tax dollars for healthcare expenses, reducing their taxable income and lowering their tax liability. For individuals with relatively stable healthcare needs, contributing to an FSA can make sense, even if it means potentially losing some funds at the end of the plan year.
To determine whether an FSA makes sense for a given individual, it's essential to crunch the numbers and consider one's healthcare expenses and tax situation. Going forward, workers should review their FSA contributions and plan accordingly, taking into account any changes to their healthcare needs or expenses. Additionally, they may want to explore other tax-advantaged savings options, such as Health Savings Accounts (HSAs), which offer more flexibility and portability than FSAs.
Originally reported by cnbc.com. FundNews adds analysis for finance & markets readers.