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Get the most from a tax-deferred account

June 25, 2010|By ALICIA NOTARIANNI

June is the month when members of my family all begin to see a little more clearly.

It's not that our eyes are opened in a metaphysical or metaphorical sense.

We just get new glasses and contacts.

It's a bit of a scramble to schedule appointments each year in May, when my husband gets a report on our flexible spending account and we realize we haven't yet used up the money.

After I call the eye doctor, it opens a flood gate to all the minor medical issues I've neglected. I ring the dentist for semi-annual cleanings for all six of us. I call the podiatrist about my husband's pesky callous, the dermatologist about my teen's blemishes and the primary care physician about the wart clinging to my little one's toe. I reschedule the gynecology exam I've canceled more than once. And I even consider calling the oral surgeon about having my wisdom teeth removed.

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It's not the pretty, fun stuff of life, but the end of the fiscal year gives it precedence and spurs me to get it done. It behooves my family to do so not only medically, but financially as well.

With a flexible spending account, money is deducted from your paycheck on a pre-tax basis to pay for out of pocket expenses such as insurance co-payments and deductibles. Other costs that usually are not covered by insurance - such as orthodontia and elective surgery - frequently qualify. Money is accessed through paper claims or the use of a flexible spending debit card.

According to finance advice publication Kiplinger.com , money funneled through a tax-deferred account could save many people one-third or more on health care costs. FSAs decrease taxable income and increase spendable income. Tax-deferred medical spending might be an option for you whether you work for a large corporation, a small company or for yourself.

About three-quarters of large employers offer flexible spending accounts, Kiplinger says. People who are self-employed or who work for small businesses - defined here as a company with fewer than 50 workers - can take advantage of medical savings accounts similar to FSAs. And some employers offer a twist on the concept called a health reimbursement arrangement.

The catch with flexible spending accounts is that you must be certain to use the money you set aside, because any amount not spent by year's end is forfeited. Some employers extend a two-and-a-half month grace period.

Kiplinger.com provides a flexible spending account calculator to help you figure out how much money to set aside. Some employers establish a maximum annual amount. Legislation could further restrict new accounts, so check with your employer for details.

I've been pretty good about using my family's account for standard copays and deductibles. But this year, with money left over, I've done some exploring to see how else it can be used.

Remember that when it comes to major expenses, you are limited to the amount you have put away. Here is a partial list of items -- priced from a few dollars to thousands of dollars - that qualify.

  • Non-prescription drugs including antacids, pain relievers, allergy medicines and cold medicines. Not toiletries, vitamins and beauty aides.

  • Contact lens cleaners and solutions, and lens replacements

  • First aid kits, insulin injections and oxygen

  • Dentures and bridges

  • Birth control pills, vasectomies and hysterectomies

  • Laser eye surgery and other elective surgeries. Not general cosmetic surgery.

  • Braille books, telephones for the deaf and guide dogs

  • Hearing aids and batteries

  • Orthopedic shoes, crutches, walkers and wheelchairs

  • Smoking cessation program including nicotine gum or patches

  • Psychiatric and psychological care

  • Lead-based paint removal

    Tuition or fees for special schools for children with learning disabilities

    Some items are gray areas, so check with your plan administrator.

    For more information, visit sites like Kiplinger.com or irs.gov .

    Alicia Notarianni is a reporter and feature writer for The Herald-Mail. Her e-mail address is alnotarianni@aol.com .

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