Last fall I opted to set aside $3, 600 in my flexible spending account for 2005 — I knew that we’d be spending a good chunk of change on medical expenses this year, so I figured we might as well save a bit off our taxes. Well, four wisdom teeth and a shiny set of man-braces later, and we’ve already recouped the entire amount. Actually, if I wasn’t lazy about faxing in my claim for the last few hundred bucks, I would’ve cashed it out entirely a couple of months ago. Anyway, depending on where we end up tax-wise this year, this represents a total federal tax savings of at least $540. I say ‘at least’ because, as I’ve noted previously, I’ve decided to redistribute my retirement contributions such that I’ll be able to capture my full 403(b) match while at the same time funding a Roth IRA. But I still haven’t worked out what effect this will ultimately have on our tax bracket. We do very well in terms of exemptions and deductions (lots’o’kids, mortgage, retirement contributions, charitable donations, etc.) so my best guess is that we’ll still be able to keep ourselves in the 15% tax bracket when all is said and done. If not, our tax savings will be even greater.
Flexible Spending Account Tapped out for 2005
2 Responses to “Flexible Spending Account Tapped out for 2005”
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$3,600 was the limit for 2005. I actually knew that we’d be incurring more than that in eligiible expenses, so I would’ve loved to set aside more.
Not sure about the removal of the use-it-or-lose-it angle. I’ve always thought that a good compromise would be to allow you to carry it over from one year to the next, but to reduce the available contributions in the following year — say the limit is $3,600 but you have $500 left over from last year… Then you would only be able to stash an additional $3,100. This would be difficult to implement, though, as you typically decide how much to commit for the upcoming year in November (at least this is how at works with my employer), but expenses incurred through December 31 count against the current year. Thus, there’s a couple of months in which you may not be entirely sure how much will be left, or if you’ll go over the limit for the next year. However, they could just penalize you and refund excess contributions if, after the dust settles, you are overcommitted. I think that, if properly implemented, this would work well and would be much more fair than what is currently in place.
How did you come up with your $3600 figure? With the “use it or lose it” provision you have to be pretty sure that you will incur the expenses. I had read somewhere that there is talk of removing the “use it or lose it” provision. Anyone have a link?
–OL