FSA enrollment: A complete guide
Having a flexible spending account (FSA) is possible without having insurance coverage, but the option must be provided by your employer, and participation is purely voluntary. This means that in order to take advantage of a flexible spending account, you must enroll.
So, what is FSA enrollment and how does it work?
Many employers offer FSAs as part of their benefits package. For years 2020 and 2021, an FSA account allows you to contribute up to $2,750 of untaxed income that you can use on FSA-eligible medical expenses for vision, dental and health care.
Read more to learn the details behind open enrollment, like how to set up an account, when to sign up and how it can save you money.
How to set up an FSA account
Before open enrollment, which begins November 1st and extends through December 15th, your employer will typically have a representative from your benefits carrier come and explain the different coverage options to employees.
The representative is there to answer any questions employees may have about coverage, including FSAs, and perhaps offer advice on which coverage best suits your current situation.
Once open enrollment begins, employees elect which coverage they want for the following plan year, which begins January 1st. If you choose to enroll in an FSA, you will be required to choose how much money you want to contribute to the account and how you would like for it to be taken from your paycheck.
For instance, if you only want to contribute $500 to the account, you note that in your FSA enrollment paperwork. You can then choose to contribute the entire $500 in one lump sum or to have smaller increments taken from your paycheck until you reach the $500 limit.
During open enrollment, you can change your FSA contribution amount and method as many times as you want. However, once open enrollment ends, your preferences are set until open enrollment of the following year.
While every employer has a different structure, benefits selections are typically submitted to someone in your HR department. It’s important to establish ahead of time where your benefits documents should be submitted and determine when the deadline for submissions are. Each company has a different protocol, which may affect submission due dates.
How FSA enrollment saves you money
Enrolling in an FSA saves you money by contributing funds from your paycheck before taxes are taken out. This, in turn, reduces the amount of taxes you have to pay every year and increases your take-home pay. Depending on your tax bracket, that could save you a pretty penny.
Additionally, putting this tax-free money away builds a little nest egg for those anticipated or unforeseen out-of-pocket medical expenses that pop up throughout the year. For example, an FSA account can be used toward eye exams, eyeglasses, contact lenses and even LASIK eye surgery.
Deductibles, copays and prescription medication are all also eligible FSA expenses, so consider this when deciding how much to contribute, depending on your personal medical needs. Please note that insurance premiums are not FSA-eligible expenses.
If you have children under 13 or are a caretaker of a parent or spouse, you may be eligible for a Dependent Care FSA. This uses the same concept as a medical FSA but allows you to use those tax-free funds on one of the most expensive services available: child care.
The funds can also be used to provide care for an adult dependent who is physically or mentally unable to care for themselves. Dependent Care FSA can help you save up to 30 percent on care costs.
While insurance coverage is not required to be eligible for an FSA, it is possible for an FSA to be utilized in addition to coverage. So, if you know you have recurring medical expenses including regular doctor visits, an FSA alone may not be your best option, but combining an FSA with your insurance coverage can save you hundreds throughout the year.
Can you enroll in FSAs anytime?
There are four times when you can open an FSA:
FSA Open Enrollment — This is the most used opportunity to enroll in an FSA. Each year in early November, the IRS announces FSA contribution limits for the following year. As mentioned above, you typically have from November 1 to December 15 to create a game plan and enroll for the next year. However, it’s best to confirm submission dates with your employer, as they may have different deadlines.
Hiring — If your new job offers an FSA (companies with more the 50 employees typically do), you’ll have the opportunity to enroll within 30 days of your hire date.
Initial Enrollment — This would be possible if your employer decided to set up a new FSA plan for its employees outside of open enrollment. In this case, you’ll have time to enroll depending on when they complete the setup.
Qualifying Life Event — If a major event occurs that could change your spending habits, like marriage or the birth of a child, you can enroll or adjust your contribution limit at that time. You usually have 30-60 days after the event, but it’s recommended to confirm with your provider.
READ MORE: FSA vs HSA: What’s the difference?
Page updated January 2021