Flexible Spending Accounts Will Lower Your Tax Bill

If your employer offers a flexible spending account (FSA) be sure to take advantage of it. A flexible spending account allows money to be deducted from your paycheck pre-tax and then used for eligible health care expenses. Eligible health care expenses include most health care expenses not covered by your insurance such as deductibles, co-insurance, dental and vision expenses, as well as over-the-counter drugs.

FSA's are pre-funded by your employer. So whatever amount you decide to set aside for the year, this amount will be available to you immediately once the plan year begins. This is an important advantage so you can plan expensive medical procedures at the beginning of the year and pay for them from your fully funded FSA on day one. And if for some reason your employment is terminated, you will not continue to contribute to the plan nor will you be required to pay back funds that you already withdrew.

Many plans now offer FSA debit cards. Using the debit card makes these plans hassle-free as they can eliminate or reduce paperwork.

One major drawback is the "use it or lose it" rule. If you have funds leftover in you FSA at the end of the plan year, you lose it. So be a little conservative when estimating your out of pocket medical expenses when you sign up for the plan.

Finally, be sure to read the specific rules of your own plan before enrolling.