3 questions to ask before the 2023 FSA opens

Image Source: Getty Images

Do all of this before funding the FSA.

Key Point

• A flexible spending account can save taxes in the process of medical spending.
• You should make sure it makes sense to fund one of these accounts and donate the right amount.

As we enter October, many companies have started the open entry period. During this time, you will be given the opportunity to choose your employee benefits for 2023. One of the benefits you’ll need to make decisions about is your Flexible Spending Account (FSA).

With FSA, you can use the pre-tax amount for medical expenses (you can also allocate funds for dependent care, but let’s talk about medical here). So if you put $1,000 into the FSA, that’s $1,000 in earnings and the IRS won’t tax you. But before you decide to join her FSA in 2023, be sure to answer her three questions:

1. How much will your medical expenses be in 2022?

One of the drawbacks of the FSA is that it requires you to commit to a specific contribution in advance. You cannot change your contribution amount unless you go through a life change, such as getting married, getting divorced, or having a child.

If the FSA runs out of funds, it will not be possible to get the maximum benefit from the account. Overfunding the FSA could result in the loss of unspent funds by the end of the planning year.

Take the time to review your 2022 medical costs before the 2023 FSA opens. Go through your bank statements, credit card statements, and other files to see how much you’ve spent on things like doctor visits and out-of-pocket expenses. You can use that number to guide your decisions for the coming year.

2. Do you expect new healthcare costs to emerge in 2023?

Maybe your child needs braces and is expected to get them next year. I can’t. These are the costs you need to consider when deciding how much to put into her FSA for 2023.

Remember, medical costs may also decrease. For example, if your child just had their braces removed, it could be one of her medical bills. won’t This could be the basis for reducing contributions to the FSA in 2023.

3. Will my health insurance plan change in 2023?

If you get a new health insurance plan, it can mean you’ll be plagued with higher co-payments and deductibles.

Similarly, you can sign up for another health insurance plan that is compatible with your Health Savings Account (HSA). HSA and FSA generally cannot be obtained at the same time. In that case, we recommend opting out of the FSA entirely. HSA is actually much more flexible than FSA and also offers tax incentives.

make the right call

Funding the FSA saves you money. But before you commit to your account next year, address these questions so you don’t regret your decision. The last thing you want to do is give up on better savings options.