Our main goal at Slater All Lines Insurance School is to teach our students the information they need to pass the Washington State Insurance Producer Exam. This is Part 2 of our new Insurance Exam Sneak Peak series. We want to provide students with an inside look at some of the topics covered in our Insurance Exam Classes.
How is a Flexible Spending Account different from a Health Savings Account?
Flexible Spending Accounts (FSAs) allow employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with an employer. No federal income taxes are deducted from the employee’s contribution. The employer may also contribute.
The benefits of the FSA are:
- No employment or federal income taxes are deducted from the contribution.
- Withdrawals may be tax free if you pay qualified medical expenses.
Self-employed individuals are NOT eligible for a flexible spending arrangement.
Use It or Lose It” Rule: Distributions from the FSA are paid only to reimburse for qualified medical expenses incurred during the period of coverage. This means that amounts in the account at the end of the plan year cannot be carried over to the next year. You must use the money in the calendar year and submit the claims by the annual deadline, or the money remaining in the account goes back to the employer, so, use it or lose it.
The “use it or lose it” rule is why a person should plan carefully, and conservatively, when making contributions into an FSA.