Flex Spending Accounts

Thursday, November 19, 2009

For those of you fortunate enough to have the opportunity to take advantage of your company's Flex Spending Accounts, I would tell you with a Great big YES! Go ahead and do it!

Many companies offer options to help pay for Child-care costs, out of pocket medical, dental, vision expenses as well as over the counter medications and prescription drug expenses.

So, it may seem like a little bit of work to fill out the papers ahead of time and try to estimate for next year how much to put aside. But you work hard for your money- Take advantage of this money saving benefit!

For example: if you make $30,000/ year and contribute $600 per year pre-tax for health care expenses, and $4800 pre-tax for child care expenses, your net spendable income would be $17,798. If you DID NOT contribute money to the pre-tax account and paid for them out of pocket, using the same amounts for expenses, your net spendable income for the year would be $16,305. The difference is the amount of money you save on taxes!

If you want a faster way of looking at projected savings, you can use the rule of thumb that you will save between 27% - 43%. (Its a wide range I know, but tax situations vary widely!)

Now, the trickey part is trying to decide how much money you plan to spend. You will need to figure out your child care expenses seperately from the medical/dental. The first thing I do is add up my prescription costs per month and multiply that by 12, easy enough. Now think about anything specific you know needs to happen this year- new glasses, kids braces, fill a cavity. Once you have a list of items, try to estimate what that will cost you. Dont freak out about getting it perfect, just estimate.
Now, you have a good number, I would be willing to bet it is larger than you expected isn't it? Now, what you do here is up to you, you can round up for those expenses you under-estimated, or you can take the safe route of rounding down to make sure you dont end up at year end with a surplus, because you CANT GET THAT MONEY BACK.
Money left over in your account is EASY to spend. You can buy asprin, NyQuol, band-aides, hearing aid batteries, contact cleaning supplies, allergy medications, or cough syrup. The only stipulation is that you have to spend this money before 12-31 at the end of the year.
I hope that this helps some of you. If you have any questions, feel free to post them and I can try to answer your question.

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