(NewsUSA) – For many, getting their financial house in order is top of mind in the initial months of the new year. And, when doing so, experts say people should consider including a flexible spending account as part of their overall financial strategy.
There are two types of flexible spending accounts: unreimbursed medical and dependent day care. At the beginning of each plan year, a flexible spending account allows an elected portion of a person’s salary to be redirected to provide reimbursement for certain types of medical and day care expenses not reimbursed by other sources.
For example, those who know that they will incur annual expenses for over-the-counter medicines can elect a specific yearly dollar amount that they spend on these bills to be put aside.
According to Michael Flock, Aflac second vice president of Benefits Services, flexible spending accounts save consumers money by reducing their taxable income. Taxes are calculated after the elected amount is deducted from a salary, meaning that a person simply won’t be taxed for the income that’s spent on eligible medical or day care expenses.
Flock suggests the following tips for managing your flexible spending account:
* Double-check your receipts. Many over-the-counter medicines are eligible for reimbursement, so review all receipts before discarding them.
* Monitor your reimbursements. Be certain that your reimbursements have been paid in full or are scheduled to be processed when your next deduction is received.
* Prepare for the Social Security impact. While almost all employees benefit from the tax savings of a flexible spending account, your pre-tax contributions to the account may slightly reduce your future Social Security benefits. The value of your tax savings will likely offset this slight reduction, but still consider your tax savings carefully.
* Be careful when estimating your elected amount. Accurately estimating your elected amount is important. Due to an IRS requirement, money that remains in a flexible spending account after the run-off period will be forfeited. Legislation allows for a one-time, tax-free rollover of the unused funds before they are forfeited.
“Before making an election, you should consult with your tax advisor to determine which of the available dependent care tax exemption programs will be the most beneficial to you,” says Flock.
In addition to accessing their flexible spending accounts through filing claims, consumers can also use the Aflac Now Card, a debit card made specifically for flexible spending accounts. According to Aflac, the advantages of having this card include immediate access to funds, the ability to reload the card for future plan years and easy online access to account information.
For more information about flexible spending accounts, see IRS Publication 503 on the IRS’ Web site at www.irs.gov or visit www. aflac.com.
