What Is the IRS Annual Maximum for a Flexible Spending Account?

Taking advantage of a flexible spending account (FSA) is a way to put money aside for elective procedures such as braces, dental work, vision correction surgery and even cosmetic enhancements. The money you put into a flexible spending account comes out on a pretax basis, which lowers your tax bill while helping you save more money for the health care you need.

Employer Limits

• As of 2011, there is no federal limit on the amount you can put into a flexible spending account each year, although there are limits put in place by employers. Companies typically limit the amount of money their workers can direct into an FSA, and that means employees are bound by those limits. If you believe the current limit is too low, you can lobby your benefits office or human resources department for a change.

Changes in 2013

• Even though there is currently no government-imposed limit on the amount you can put into a flexible spending account, those changes are on the way, and you may want to start planning for them now. As of 2013, individuals face a cap of $2,500 a year on their FSA contributions. This limit on flexible spending accounts is part of the overarching health care reform legislation championed by President Obama and passed by Congress.

Planning for Changes

• Because you know this FSA limit will be enacted, you can start to make plans. If your employer currently allows you to put aside more than the $2,500 limit, you can contribute more now and use that money to finance any planned medical spending you expect. For example, if you have been considering LASIK surgery to correct your vision, you may benefit by scheduling the procedure now. You can use the money in your flexible spending account to pay for the surgery. Because the funds used are pretax money, thereby lowing your taxable income, you end up paying less out of pocket, and you can enjoy better vision before the new restrictions begin.

Use It or Lose It

• One of the negative aspects of a flexible spending account has been that any money not used by the end of the calendar year is forfeited. This rule often resulted in a flurry of activities at pharmacies, dental offices and eye car providers, as employees scramble to use their available FSA funds before they are lost. A change enacted in 2005 gives employees a little more leeway and some relief from this rule, giving workers a 2 1/2-month grace period to use up any remaining funds in their flexible spending accounts.