Tuesday, December 8, 2009

Use It or Lose It

I have just completed my company's annual open enrollment. This is where employees have the opportunity to change medical or dental plans, and to opt into making contributions to a flexible spending account (FSA). In general, a flexible spending account allows one to contribute deposit pre-tax dollars into the account to pay for medical expenses, or to pay for dependent care. Note that these are two different types of accounts. The ability to use pre-tax money to pay for expenses is a good benefit that can save a lot of money.

However, one thing to keep in mind is that most flex spending accounts operate on a "use it or lose it" basis. This means that any balance you have in the account at the end of calendar year is forfeited to your employer. Since this is something that I would rather not do, I never leave any money on the table at the end of the year.

But in the current economy, I also want to warn my readers of one more potential hazard with FSAs. Having been downsized twice in the last decade, I can tell you that the "use it or lose it" provision also applies if you are terminated without cause (i.e., laid off). This may seem totally unfair, but that has been my real life experience.


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