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Time to determine flexible spending account contributions

Posted by Cheryl Costa October 27, 2008 10:03 AM

It's that time of the year again -- time to start seriously thinking about how much you will spend on health care and dependent care expenses in 2009.

"Open Season" will be starting soon and that is the time period towards the end of the year when employers ask employees if they want to participate in flexible spending accounts. I am a huge fan of this employer benefit and it is always disappointing to learn that, on average, only a third of eligible employees sign up when such a plan is offered.

With flexible spending accounts, you can deposit pre-tax money in account that can be used to pay for out-of-pocket healthcare and chilcare expenses. Maximum contribution amounts can vary by employer but most permit contributions of $2,500 to $5,000.

If you are in the 33 percent tax bracket and you contribute $5,000 to a flexible spending account, you will save $1,650 in federal taxes. So, if you are considering laser eye surgery some time in 2009, consider paying for it using a flexible spending account -- its like getting a discount equal to your marginal tax bracket.

The "catch" is that you have to be very careful in estimating your 2009 expensense. You lose any money that you don't spend by December 31, 2009 ( or March 15, 2010 in some plans).

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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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About the contributors

Jill Boynton is co-founder of Cornerstone Financial Planning in Newington, N.H. Along with traditional financial planning services, Boynton provides analysis specifically for divorce.
Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.
Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.
Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.

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