How Much Should I Allow for My Flexible Spending Account?

Electing to put money into a flexible spending account that is offered by your employer is one of the most effective ways to save money on out-of-pocket medical expenses. However, with this kind of account, any money that is left, disappears at the end of the year. This is why choosing the proper amount to contribute is important.

Annual Limits

• When it comes to flexible spending accounts, the Internal Revenue Service does not set any annual limit on how much you or your employer can contribute. The rules do require your employer to set a maximum amount on your plan. This means that each flexible spending account has a different maximum amount that can be contributed. When you come up with an amount that you want to contribute, it is important to make sure that you stay under this limit.

Look at Previous Bills

• One of the best ways to find out how much you may spend on health care in the next year is to look at what you spent in the past. Many people tend to pay for the same procedures and doctor visits every year, within a certain range. This means that you should get out any old medical bills or look at your bank statements to determine exactly how much you spent on health care-related expenses over the previous 12 months.

Anticipate Large Bills

• At the beginning of the year, you have to decide exactly how much you want deducted from each paycheck to go into your flexible spending account. If you know at the beginning of the year that you plan on having a major medical procedure completed, you need to increase the amount of your contribution. By increasing your contribution in advance, you can save up enough money to potentially pay for most of the procedure out of pocket.

Leave Some Room

• With annual increases in health care prices, it can be difficult to predict exactly how much money you will need to pay for medical expenses. Because of this uncertainty, you should leave a little bit of extra room in your contribution. Look at how much you spent last year and then add a certain percentage on to that amount. For example, you might consider putting in another 5 to 10 percent on top of last year, just to be safe.