What to do with my FSA plan?

[Spondulix]

I get medical coverage through a FSA (flexible savings account) with employer contributions. I'm trying to decide if it makes sense to make additional pre-tax contributions, and how much.

How I'm using it now:

• My employer pays 13% pay for every day I work into the FSA (this money is on top of my wages, not taken out)
• I've enrolled in medical, dental and disability for myself and DH, which premiums are paid automatically. The contributions are usually around $1200, and the plans cost around $1100.
• At the end of the year, any contributions left that the employer made will grandfather in, so I can still use that money in the future. This year that'll probably be about $1k.

The nitty gritty:

• I can receive reimbursement for charges (co-pays, out-of-pocket, etc), but not until the balance in my account exceeds two months premiums ($2200).
• For pretax contributions, any money that isn't used in the same year will be forfeited at the end of the year
• Employee contributions apply to premiums/payments before employer contributions.

What I'm considering:

• If I'm no longer in the job, I can still keep the insurance plans until the money runs out. So it might be worth getting ahead as a safety precaution
• I don't earn any sort of interest on the money that sits in the account.
• I think I can still write-off the expenses on my taxes if I don't do reimbursement.
• We're planning to have a baby in the next year or two, so it might make sense to build up the account to cover time off, adding a child to the plan, covering out-of-pocket expenses, etc.
• It seems like the rules of the plan make it designed for an optimal pre-tax contribution (given that the personal money goes away, and the minimum for reimbursements). Or are they just trying to get people to keep their money in so they can pocket the interest?

Any suggestions, or anything I'm not considering? I can definitely adjust my budget to accommodate... I just don't know if it's better to keep the post-tax money myself and earn interest, or pre-tax (but no interest).

[Spondulix]

(bump) no ideas?

[COlady]

Are you certain it's an FSA and not an HSA? The differences between these two plans are substantial.

[Monkey Uncle]

If your employer is putting an amount equal to 13% of your pay into the account, why on earth would you need to put additional money into it?  Unless maybe you have expensive chronic health issues?  If you lose your unused contributions at the end of the year, I see no benefit to putting money in unless you expect to have some really steep health care expenses.  Am I missing something?

[Spondulix]

Are you certain it's an FSA and not an HSA? The differences between these two plans are substantial.

It's definitely an FSA.

If your employer is putting an amount equal to 13% of your pay into the account, why on earth would you need to put additional money into it?  Unless maybe you have expensive chronic health issues?  If you lose your unused contributions at the end of the year, I see no benefit to putting money in unless you expect to have some really steep health care expenses.  Am I missing something?

Thanks for the response. No health issues, but possible maternity (so likely would hit the out of pocket max). 13% only covers premiums for myself and DH - it's not going as far as one would expect. It's also a volatile industry, so I have no idea if my job will exist in 5 years. That's part of why I was thinking about banking some of those employer contributions. Re-reading the docs, I shouldn't ever be in a place of losing my contributions - "If you do not set the maximum deduction amount higher than the cost of your insurance premiums and your Dependent Care expenses combined, you will never have to worry about forfeiting your employee contributions."
 
But I'm wondering if it's even worth getting into. Do out of pocket costs (deductibles, etc) balance out equally with tax write-offs? Or, would I get more bang for the buck getting reimbursed with pre-tax money? I'm just looking for the best way to work the system (my co-workers, on the same plan, are not very financially savvy.)

[mxt0133]

Do you use the all of most of the funds in the FSA now?  With an FSA all funds that are not spent at by the end of the year are forfeited, if you use all the funds that you set during your enrollment period early in the year and leave your company you do not have to pay it back.

If you don't use all of the funds in the FSA now then I would not put in more unless you know you will be incurring higher medical or dental expenses in the following year.

[MDM]

Are you certain it's an FSA and not an HSA? The differences between these two plans are substantial.

It's definitely an FSA.

It may be, but then this part of the OP is problematic:

At the end of the year, any contributions left that the employer made will grandfather in, so I can still use that money in the future. This year that'll probably be about $1k.

See http://en.wikipedia.org/wiki/Flexible_spending_account (or the underlying IRS publication): $500 is the most you can carry over in an FSA, and that is only if your employer has set it up that way.  At least, that's the way I (and perhaps others) understand FSA workings.  Can you clarify?

[Spondulix]

At the very end of the plan description, it says it's an HRA (that's new to me!) It's confusing because the actual name of the plan is the "Flex Plan". Here's what it says:

"The Flex Plan is a welfare benefit plan with both employer and cafeteria plan funding. It includes insured medical, life and disability benefits; self-insured medical and dependent care assistance expense reimbursement benefits. The medical expense reimbursement benefit aspect of the Plan is an HRA (Health Reimbursement Arrangement)."

On Wikipedia it says funds can roll over. I'm not clear if that changes tax implications at all.

[Monkey Uncle]

If your employer is putting an amount equal to 13% of your pay into the account, why on earth would you need to put additional money into it?  Unless maybe you have expensive chronic health issues?  If you lose your unused contributions at the end of the year, I see no benefit to putting money in unless you expect to have some really steep health care expenses.  Am I missing something?

Thanks for the response. No health issues, but possible maternity (so likely would hit the out of pocket max). 13% only covers premiums for myself and DH - it's not going as far as one would expect. It's also a volatile industry, so I have no idea if my job will exist in 5 years. That's part of why I was thinking about banking some of those employer contributions. Re-reading the docs, I shouldn't ever be in a place of losing my contributions - "If you do not set the maximum deduction amount higher than the cost of your insurance premiums and your Dependent Care expenses combined, you will never have to worry about forfeiting your employee contributions."
 
But I'm wondering if it's even worth getting into. Do out of pocket costs (deductibles, etc) balance out equally with tax write-offs? Or, would I get more bang for the buck getting reimbursed with pre-tax money? I'm just looking for the best way to work the system (my co-workers, on the same plan, are not very financially savvy.)
[/quote]

Ah, I didn't pick up on the fact that you're using the employer contributions to pay your insurance premiums.  In that case, it makes sense to put in an amount that doesn't exceed your expected medical expenses (deductible, co-pays, and coinsurance).  I'm not sure I understand the question you're asking in the second paragraph about balancing with tax write-offs vs. getting reimbursed with pre-tax money.  You only get to deduct medical expenses to the extent that they exceed 7.5% of your AGI.  So you're not getting any of that action unless you have a lot of health expenses.  Which might be the case if you have a baby, but you'd need to weigh the expected expenses against your expected AGI to know for sure.  Again, only the part that exceeds 7.5% of your AGI is deductible.

[gatorNic]

At the very end of the plan description, it says it's an HRA (that's new to me!) It's confusing because the actual name of the plan is the "Flex Plan". Here's what it says:

"The Flex Plan is a welfare benefit plan with both employer and cafeteria plan funding. It includes insured medical, life and disability benefits; self-insured medical and dependent care assistance expense reimbursement benefits. The medical expense reimbursement benefit aspect of the Plan is an HRA (Health Reimbursement Arrangement)."

On Wikipedia it says funds can roll over. I'm not clear if that changes tax implications at all.

Yeah that's a big difference.  I have an HRA.  HRA's CAN roll over, but it is completely up to the employer so you have to check with them.  Mine does.  However, the big thing with HRA vs HSA is that HRA's go away when you leave the company.  HSA's are yours to keep.  Well one caveat with my HRA is that once I leave the company it is good till the end of the current year, not exactly when you leave the company.  I am in a volatile industry as well so its the first account I try to use.

What's interesting with what you are saying is that you can actually contribute to it?  I am not allowed to contribute, it is solely for the company to put money in I can use. So I think you should talk to your benefits admin and get it cleared up since there are such large differences.  You don't want to be contributing to something the goes away when you leave the company. 

[Spondulix]

Ah, I didn't pick up on the fact that you're using the employer contributions to pay your insurance premiums.  In that case, it makes sense to put in an amount that doesn't exceed your expected medical expenses (deductible, co-pays, and coinsurance).  I'm not sure I understand the question you're asking in the second paragraph about balancing with tax write-offs vs. getting reimbursed with pre-tax money.  You only get to deduct medical expenses to the extent that they exceed 7.5% of your AGI.  So you're not getting any of that action unless you have a lot of health expenses.  Which might be the case if you have a baby, but you'd need to weigh the expected expenses against your expected AGI to know for sure.  Again, only the part that exceeds 7.5% of your AGI is deductible.

Aha, ok I was definitely confused on that. Before this year I was self-employed, so getting a tax credit for insurance premiums. My accountant always asked for numbers on what I spent on additional medical (which is low) - I just assumed I was getting a write-off somewhere because of it.

What's interesting with what you are saying is that you can actually contribute to it?  I am not allowed to contribute, it is solely for the company to put money in I can use. So I think you should talk to your benefits admin and get it cleared up since there are such large differences.  You don't want to be contributing to something the goes away when you leave the company. 

I definitely can contribute. I need to get some clarification on what happens when leaving (or if they could possibly change the rules). This is very helpful, so thank you!