Flexible Spending Account Contributions

[justin]

Question for smart people on the forum. My wife just started a new job. She can contribute to a flexible spending account (FSA) for the 2005 year. We have $2000 in medical/dental expenses from July that we could potentially get reimbursed out of her FSA if we contributed $2000 into the FSA. The FSA is use it or lose it; if we can't get reimbursed for the $2000 we spent before she started the job and made the FSA contribution, we lose the money (except what we can spend by the end of the year).

The question is whether an otherwise qualified expense that would normally be reimbursed by an FSA can be reimbursed if the expense was incurred prior to starting and funding the FSA?

 

[GTM]

Don't know for sure but my guess would be no reimbursement for expenses incurred prior to starting the job and making the FSA contribution.

Why bother contributing $2000 into an FSA when the year is almost over?

I would get a definite answer to your question or the $2000 contributed into the FSA from job starting time to end of year is unlikley to be utilized.

 

[maddythebeagle]

I really doubt it. Ours is set up to put a declaration in oct/nov. for the NEXT year.

 

[justin]

Why bother contributing $2000 into an FSA when the year is almost over?

If we could use the $2000 from the FSA for the medical expenses already incurred a few months ago, it would save us ~$500 in taxes. On the other hand, I don't want to risk losing $2000 if the previously incurred expenses end up being un-reimbursable. I'm fairly certain we won't spend any where near $2k on medical expenses before year end, barring an emergency.

I thought contributing this money to the FSA would be a quick way to save $500 in taxes, if we can do it.

 

[jj]

I would check with the company plan administrator, it has rules plus it is also governed by IRS regulations. 

I really doubt it. Ours is set up to put a declaration in oct/nov. for the NEXT year.

Ours was set up this way too.  You don't want to waste $2000 (or whatever $2000 less your tax saving would be).

jj 

 

[Craig]

Ask your HR department, or call the administrator. I don't know if the code or reg's for IRC Section 125 lay this out, but I'd bet a nice lunch this won't fly ... I believe the expenses must be incurred after you begin contributing to the FSA.

But it will be wise to use this to the max next year ... very helpful plans. Best of luck.

 

[cj]

And you all may already know this but some people here don't: you can use the FSA money for over-the-counter products like asperin, antacids, cold medicine, etc. A lot of people overlook this. It adds up over time!

CJ

 

[vic]

I am quite sure that expenses have to be incurred while you are contributing to the HSA. One time when I had left an employer just days ago and was still covered by their medical plan, I had some medical expenses. However, since I was not actively contributing to their plan any more, I could not use the money in my account to get reimbursed. When I started with a new employer, I could not use my FSA for those expenses either because they were incurred before I started contributing to their plan. Check with your HR rep to make sure.

Vicky

 

[cj]

Vicky - that's interesting. In 1996, I left a job at the end February. I had signed up to put $240 per year ($20 per month) in the FSA. So at the end of February, I had only put in $40, but I was told I was entitled to use the entire $240, which I did! I thought that was some kind of law. But I probably submitted the receipts before I left the company. I am planning to take advantage of that the same way next year, when I ER in May.

CJ

 

[justin]

The question is now moot: HR said it is a no go. Only medical expenses incurred after the first day of employment can be reimbursed by the FSA. Now, on to figuring out a different way to screw the taxman out of his hard earned money.

 

[vic]

Vicky - that's interesting. In 1996, I left a job at the end February. I had signed up to put $240 per year ($20 per month) in the FSA. So at the end of February, I had only put in $40, but I was told I was entitled to use the entire $240, which I did! I thought that was some kind of law. But I probably submitted the receipts before I left the company. I am planning to take advantage of that the same way next year, when I ER in May.

CJ

I filed all the receipts and they bounced with a message that this occured outside of the eligible period (was hoping it slipped through). You are lucky that that went through. I just left another employer where I was putting in $240 per year ($20 per month). They only reimbursed me for $200 which is what I put in for the year.

Vicky

 

[Martha]

If you leave employment you can COBRA your FSA if you have money in your account you haven't used. But you need to elect COBRA coverage. EDIT: I know this is the case for a few plans I have dealt with but I don't know if this is a COBRA rule applicable to all plans.

Also, as Vic noted, you can draw "in advance" from an FSA. If you plan to put $100 per month in the account for the year, but spend $1000 in January, you can get the entire $1000 back right away, even though you haven't contributed the entire amount yet. This means that if you leave work in February, you will have taken out more than you paid in. Employers just live with that risk.

EDIT: You can't take out money in advance from a dependant care account. You only can for the medical account.

 

[cj]

If you plan to put $100 per month in the account for the year, but spend $1000 in January, you can get the entire $1000 back right away, even though you haven't contributed the entire amount yet.  This means that if you leave work in February, you will have taken out more than you paid in.  Employers just live with that risk.

I think that's what happened with me.  Employers live with the risk, but they also have LOTS of employees who leave money on the table at the end of the year.  So I don't feel too sorry for them!

CH

 

[justin]

Does the money forfeited in an HSA revert to the employer or to the plan administrator (such as an insurance company)?

 

[Martha]

Does the money forfeited in an HSA revert to the employer or to the plan administrator (such as an insurance company)?

Under our plan it reverts to the employer. We give it to the United Way.

 

[justin]

Under our plan it reverts to the employer. We give it to the United Way.

I guess it is plan specific. I want to say my ~25 employee employer's plan has the money forfeited to the plan administrator, presumptively to cover plan administration costs?? Seems like a conflict of interest though, since the plan administrator also approves/denies claims on the FSA.

 

[Brat]

I want to say my ~25 employee employer's plan has the money forfeited to the plan administrator, presumptively to cover plan administration costs?? Seems like a conflict of interest though, since the plan administrator also approves/denies claims on the FSA.

Ahh.. that explains why my husband couldn't get the administrator to pay out. He resigned the program and shared his opinion with others.