Each year during open enrollment season, employees are faced with important benefit decisions that can significantly impact their finances. One choice that often gets overlooked is participating in a Flexible Spending Arrangement (FSA), even though it’s one of the easiest ways to save on healthcare costs. For 2024, the FSA contribution limit is increasing – so now is the perfect time to consider maximizing this tax-advantaged perk.
An FSA allows employees to set aside pre-tax dollars from each paycheck to pay for qualified medical, dental, and vision expenses not covered by insurance plans. The money is deposited into an FSA debit card or reimbursement account. Here are some key things to know about the updated 2024 limits:
– The maximum employee contribution amount is rising by $150 to $3,200 (up from $3,050 in 2023).
– Employers may also contribute to employee FSAs in addition to or instead of the employee contribution.
– Married couples can each contribute up to the individual limit to their separate employer plans, effectively doubling the household amount to $6,400.
– Unused 2023 balances can be carried over into 2024 up to $610 (versus $570 previously). The 2024 carryover limit for use in 2025 is increasing to $640.
This additional $150 in tax-free funding provides more flexibility to pay for a wide range of eligible medical costs throughout the year. Some popular FSA uses include:
– Copays, coinsurance, deductibles and other out-of-pocket medical expenses
– Prescriptions, dental care like cleanings/fillings, eye exams and supplies
– Chiropractic services, physical therapy and qualified medical transportation
– Insulin, first aid supplies, feminine products and more over-the-counter items
During open enrollment, it’s crucial to estimate your expenses over the next year and take full advantage of this perk. Be sure to consider costs that regular health insurance may not cover as well as seasonal health products.
For those with FSA carryover options, it’s also an opportunity to maximize use of existing balances before the deadline and contribute more to your 2024 account. Set aside the amount you know you’ll spend and potentially save hundreds or more in taxes!
When open enrollment ends, you can no longer change your FSA election until the following year unless you have a qualifying life event. So do your research, make a careful plan and enroll now for the upcoming benefit period if your employer offers an FSA. Taking a few minutes to optimize this benefit could pay major dividends on your healthcare bottom line.
For self-employed individuals or those whose employers don’t provide an FSA, Health Savings Accounts (HSAs) present a similar tax-advantaged option. Both FSAs and HSAs allow paying for eligible medical costs with pre-tax dollars, so exploring these options as part of your benefits strategy is well worth the effort.
As healthcare prices continue to rise, set yourself up for cost savings in 2024. Review your estimated out-of-pocket medical needs and don’t leave any tax-free FSA funds on the table during this year’s open enrollment period. You’ll be glad you did when tax time rolls around next year!