Smart SpendingSmart Spending

How I got a $2,750 windfall

Being absentminded really paid off at the end of the year, thanks to my flexible spending account.

By Karen Datko Jan 7, 2011 4:53PM

This guest post comes from Len Penzo at Len Penzo dot Com.

 

If I leave a $20 bill in a winter jacket, only to rediscover it after it has been hanging in the closet for nine months, I consider that a windfall.

 

Now I can hear a lot of you out there already: That's not a windfall, you schmuck, that's just dumb luck.

Oh, sure. You'll say I didn't gain any additional money that wasn't officially mine to begin with anyway, but I disagree.

 

In reality, what I really did was rediscover a little money I had unwittingly lost the previous winter. Therefore, it's a windfall.

 

That's my story anyway and I'm sticking to it.

 

Why I love flexible spending accounts

Now let me tell you about my latest windfall.

 

Every year, I take advantage of the health flexible spending account offered by my employer because, frankly, I'd be crazy not to. After all, it's essentially free money. Well, at least part of it is. That's because FSA contributions -- which are used to pay for out-of-pocket medical expenses that are not covered by your health insurance plan -- are tax-free. That's right, tax-free!

By taking advantage of the tax-free money I contribute to my FSA, I am, in essence, allowing the government to subsidize a portion of my annual unreimbursed medical expenses. Post continues after video.

Needless to say, every year you can bet that I use my FSA to pay for all my medical co-payments and deductibles on everything from prescription medicine to glasses and contact lenses.

In 2010, I elected to have a little over $105 deducted from every paycheck and placed into my FSA. For those of you keeping score at home, that's $2,750 in tax-free money.

 

My summer FSA ritual

I always have enough medical claims to use my entire FSA allowance by midsummer. Always.

 

In fact, I have this ritual where in August I usually tally up the family's qualifying medical expenses and then use the FSA reimbursement check to help soften the financial blow of our annual summer vacation. Usually.

 

I say "usually" because, on the eve before my employer's annual benefits enrollment period expired last month, I was finalizing my 2011 electives when, to my utter amazement, I realized that I had yet to request any medical reimbursements in 2010 from my flexible spending account. Yep.

 

Just like that, 2,750 simoleons that I thought I had already spent in August were suddenly available -- and just in time to defray all those holiday expenses too.

As the old saying goes, I was happier than a tornado in a trailer park. Heck, even the Honeybee did her little beehive dance after I told her about our large windfall.

 

My only disappointment was that I badly underestimated our qualifying medical expenses for the year; we ended up having more than $3,500 in all.

 

True, everyone has to be careful to not overestimate their annual qualifying medical expenses because FSA money deducted from your paycheck is "use it or lose it," but you may be surprised to learn that it often doesn't take much for qualifying medical expenses to quickly add up, especially for a family of four.

 

For example, just take a look at a gross summary of my qualifying expenses this past year:

 

Even though I underestimated my expenses just a bit, I'm certainly not going to quibble. After all, getting an unexpected $2,750 is nothing to scoff at. No matter what you decide to call it.

 

More from Len Penzo dot Com and MSN Money:

6Comments
Jan 11, 2011 9:41AM
avatar
I have an FSA with a debit card. I use it to pay for medical expenses right away and then submit the reciepts if theu need them.  I do this so I'm NOT using taxed, out of pocket money up front to pay for medical bills, and I still run out of FSA money by June.
Jan 11, 2011 8:46AM
avatar
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.Saving also includes reducing expenditures, such as recurring costs.
==
[url="http://www.ban​kclos​ures.info"]Savin​gs Account Online[/url]
Jan 11, 2011 8:45AM
avatar
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.Saving also includes reducing expenditures, such as recurring costs.
==
[url=http://www.ban​kclosures.info]Savin​gs Account Online[/url]
Jan 11, 2011 8:44AM
avatar
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher.
------------------------
<a href="http://www.bankclosures.info" rel="dofollow">Savings Account Online</a>


Jan 10, 2011 3:23PM
avatar
The author should have calculated the amount of the windfall she received as $2,750 times her total tax rate - ie her overall Federal and state/local income tax rate plus her payroll tax rate. In 2010, my total tax rate was 20 to 25 percent, and I contributed $1,000 to my FSA, for about a $250 savings. That helped, but FSAs can be a lot of trouble.
Jan 7, 2011 9:49PM
avatar
You're painting the wrong picture.  It's not like all of a sudden you got a check for $2750.  Usually the FSA will reimburse you automatically after say a doctor visit or prescription because it goes through your health insurance and the FSA pays it out.  Things like vision you might have to send in a claim form in order to be reimbursed.  Unless you have a plan that you need to fill out a claim form for every medical expense, most people won't wait until the end of the year to do so.  There's a greater chance of misplacing a receipt.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More