This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

FSAs Still Worthwhile Under New Rules

BERKELEY HEIGHTS, N.J. ( TheStreet) -- Flexible Savings Arrangements were modified starting Jan. 1, a result of the health care legislation enacted a year ago, with over-the-counter medicines no longer qualifying for reimbursement unless you have a prescription. The only exception to the rule is insulin.

The new rule affects only purchases made after Jan. 1, though, so over-the-counter purchases made last year could still be reimbursed if allowed by an employer's FSA plan. (It should be noted this same rule also applies to Medical Savings Accounts, Health Savings Accounts and Health Reimbursement Arrangements.)

Nonprescription, over-the-counter drugs are no longer reimbursed through Flexible Savings Arrangements and the like, but the plans still have value.

On the upside, effective March 30 the FSA rules allow for someone under the age of 27 to qualify for expense reimbursement.

Do FSA plans still make sense, given the new rules? The answer is absolutely yes.

FSAs allow employees to set aside pretax dollars to pay for unreimbursed medical expenses. These plans typically have a maximum annual dollar contribution amount. FSAs are great for employees because they reduce their taxable income and are not subject to employment taxes. The accounts also provide a funding vehicle for unreimbursed medical expenses.

Reimbursable expenses still allowed from FSAs include items such as eyeglasses, dental work, contact lenses, co-pays and deductibles, so the loss of over-the-counter medications from the list is not so important. A person without an FSA normally would have to claim these expenses as an itemized medical deduction subject to 7.5% of their adjusted gross income. People are far better off getting their income reduced dollar for dollar rather than making an itemized deduction subject to a threshold.

With an FSA plan the most important factor is how much to contribute each year. People who contribute too much forfeit their unused balance, so someone using an FSA needs to figure out how much in qualifying medical expenses they will likely have in any given year. (Now, of course, when making contributions since 2010 they need to remove over-the-counter medications from their estimates.)

FSAs are still worthwhile, but make sure each year to do a projection of next year's projected expenses. Failure to do so may result in the accountholder forfeiting unused FSA balances.

>To submit a news tip, email:


Follow on Twitter and become a fan on Facebook.
Michael Maye is the founder and president of MJM Financial Advisors, a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's 'Biz Brain' and 'Get With the Plan' articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.63 2.10%
FB $117.42 -0.97%
GOOG $691.83 -0.91%
TSLA $233.72 -3.30%
YHOO $35.90 -1.70%


Chart of I:DJI
DOW 17,628.94 -121.97 -0.69%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs