Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) are accounts specifically setup to allow workers to spend pre-tax dollars on health expenditures. FSAs are very common, and as of 2008 approximately 9 of every 10 employers offered an FSA option for their employees. Unless you are self-employed or unemployed, the odds are that you can use an FSA to help decrease the cost of your healthcare spending.

An FSA is commonly operated through an administrating company, which may or may not be the same administrator of other employee benefits. FSA dollars may be spent on eligible health expenses, on insurance premiums, or on eligible dependent care expenses. With most employers, sign-up for FSAs occur during the benefits open enrollment period, or during a "life change" window such as a marriage or the birth of a child.

Like Health Savings Accounts (HSAs), FSAs are intended solely for health expenses and are regulated. The process for saving and spending FSA dollars are dictated by federal policy, and in many cases your employer or administrator may have additional regulations or requirements.

Unlike HSAs, FSAs are offered employees regardless of which health plan they choose (an HSA is only available to employees who also choose a qualified High Deductible Health Plan). While HSAs build and grow from year-to-year like a 401k or IRA, FSAs have a "use it or lose it" provision. The dollars saved must be spent within the same benefit year.