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More on Flexible Spending Accounts

Posted by Cheryl Costa  September 9, 2008 09:56 AM

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There is a lot of ground to cover with Flexible Spending Accounts (FSAs) so I have decided to make a two-part entry. Yesterday, I talked about how FSAs in general terms. Today, we tackle some specifics.

First, you would probably be surprised to learn how many things are considered eligible health care expenses. There are the usual expenses that everyone would expect to be covered, like office visit co-payments and glasses/contact lenses, but it might surprise you to know that the following are also eligible medical expenses:

Acupuncture
Dentures
Braille Books and Magazines
Chiropractor Expenses
Guide Dogs for the Blind
Hearing Aids
In-Vitro Fertilization
Laser Eye Surgery
Orthodontia, and
Smoking Cessation Programs

Examples of expenses that would not be covered would be:

Cosmetic Surgery
Health Club Dues, and
Teeth Whitening

Dependent Care FSAs would cover childcare expenses for children under the age of 13. In certain circumstances, expenses for older children would also be covered but generally the child would have to live with you and be incapable of self-care.

For a full list of eligible expenses, check out IRS Publication 502 and remember that your employer may omit some of the items on the list.

To participate in your company's FSA, you must enroll within 60 days of your date of hire, within 60 days of a qualifying event (usually a marriage, birth, divorce or loss of a spouse's insurance coverage), or during Open Enrollment (which typically occurs in October or November of each calendar year.)

Your annual election amount is taken evenly from each paycheck you will receive over the year and contributions automatically terminate when you end your employment. It is also important to note that coverage for qualifying expenses ends the month that your last contribution is made so you would be in trouble if you quit and then had your laser eye surgery the following month.

It is critically important that you very accurately predict your medical and dependent care expenses. This can be difficult because you are projecting into a future year and circumstances can change. However, you don't want to over-conribute to these types of accounts because you must forfeit any funds not used for valid expenses. Some plans offer a "grace period" and allow you incur eligible expenses through March 15th of the year after you elect coverage. Check with your benefits department for more details.

If you are thinking of contributing to an FSA for the first time, keep your eyes open since Open Enrollment could start in just a few weeks at your company. If you are already contributing to an FSA in 2008, now is the time to re-examine your expenses and make sure your spending is on target -- you don't want to find yourself short on eligible expenses at the end of the plan period.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
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