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: firstname.lastname@example.org.
Twitter and become a fan on Facebook.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV