FSA: Use it before you lose it, or start paying now

The holiday season might be fun, but it also brings with it some tough end-of-the-year financial decisions.

One of those decisions centers on the flexible spending accounts (FSA) that many government employees invest in to supplement their out-of-pocket health care costs.

The maximum limit for these accounts is currently set at $2,600.  If the remaining balance is still above $500 at the end of the year, that money is wiped out. If the account doesn’t pass the threshold,  however, a participant may carry the remaining balance to the next year if they choose to continue with their flex account, according to Tammy Flanagan, the senior benefits director at the National Institute of Transition Planning.

“I know we always schedule some of our doctor’s appointments toward the end of the year, just to find out if there’s any more … prescriptions to refill or any eyeglasses we can get updated prescriptions on,” Flanagan told Federal Drive with Tom Temin. “Because these are all things you can spend those leftover flex dollars on.”

Flex dollars cannot be spent on insurance premiums, but can be used for prescriptions and over-the-counter medications. Medical equipment such as bandages, crutches or first-aid kits can also be purchased with FSA balances.

Unfortunately for some, these flex accounts can only be utilized by active federal employees. In other words, those who have retired are not eligible. And those who plan to retire before the end of the year must use their balance before leaving their position.

“There was talk, at one time, about extending that benefit to retirees, which I’m sure they would love. That is, anyone loves a tax break,” she said. “But it’s strictly an employee benefit.”

The last 12 days of December are coming fast, and Flanagan said anyone planning to retire by Dec. 30 must decide whether to spend the funds now or be prepared to incur the medical expenses later.

Catch-up contributions

Retirees may not be able to lean on flexible spending accounts, but if they are 50 years old or older, they may be eligible to make increased contributions to catch up on their retirement savings.

These contributions are set up outside of standard Thrift Savings Plan accounts.

The agency pay periods have already begun for next year, so Flanagan said starting 2018 contributions now is a good idea. Though, actually “catching up” is only possible for those who have already been consistently contributing something toward their plans, she said.

“I think the name ‘catch up’ is a little bit of a misnomer, because if you haven’t been contributing for 30 years and you think you’re going to catch up in the last two years, that’s not going to happen,” Flanagan said.

Reallocation of funds

The end of the year also gives retirees the chance to reallocate their TSP funds. It gives participants the choice to reinvest their savings — especially those with individual funds, or those who invest in the C, F or G funds.

“It’s always a good idea at this time of the year to take a look at how your performance has been over the past year and maybe make that reallocation,” she said.

There is no cost to reallocate your TSP funds because that cost is covered by the administrative fees paid when opening an account.

Flanagan encourages those who will be 66 years old in 2018 to go ahead and file for Social Security.

“There is some financial planning and tax planning involved with that decision, but you certainly have the option to start receiving benefits if you need the money,” she said. “And if you’re going to retire for sure, you probably ought to start doing that.”