Updated: Oct 20, 2019
You need a good financial education--everyone does. However, as a teacher, it is essential for your future.
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You are a segment of society that is disregarded when it comes to finances.
The truth is you are often misled and misinformed. I’d like to help you change that. I want to give you the tools to make better decisions with your money so that you can have the financial future that you deserve!
One very important piece of this financial puzzle is your flexible spending account.
What Is A Flexible Spending Account?
I would like to tell you what a flexible spending account is and share the right way to use it.
The flexible spending account is an account that is used to reduce your income for tax purposes. Then you turn around and use the money for medical expenses.
The majority of people think of medical expenses as being a doctor visit and prescriptions. However, this account can be used for so much more!
Are you taking advantage of this valuable benefit?
Because I know there are a great many teachers who aren’t taking advantage of their flexible spending account!
And everyone who has an available FSA account should be using it!
Maybe you aren’t aware of how often your colleagues are swiping their FSA card for medical care. You don’t realize they are saving on their taxes!
It might be the benefits of having a flexible spending account are not your typical conversation topic in the teacher’s lounge, so you aren’t sure what an FSA can do for you!
Another scenario is you figure that you don’t need a flexible spending account because you are usually healthy and don’t have medical expenses.
Almost every teacher has an FSA as a benefit. It’s not something that a company makes a lot of money from you using, so they don’t push the fact that it’s available.
If you are someone who is not choosing to use an FSA account, I hope to give you enough information that you might want to reevaluate your stance and sign-up!
Let’s start at the beginning, which is funding the account. How much money can you put into your FSA account right now?
Funding Your Flexible Spending Account
The contribution limit for 2019 is $2,700. If you put $2,700 in your account and you’re in the 24% federal tax bracket, your savings will be about $648.
How do you know how much you need to contribute to an FSA account? Do you have to contribute $2,700?
The golden rules are:
You never want to contribute more than you’ll spend.
Don’t spend more than you need to save money on taxes.
Having said that...how much do you need to contribute? I would say look back at your past medical expenses. They’ll give you a good idea of your future expenses.
I think that is an amount that you’ll feel comfortable contributing.
What Can a Flexible Spending Account Be Used For?
Earlier I indicated that people think of medical expenses as being doctor’s visit (copays) and prescriptions.
The flexible spending account also can be used for any out of pocket money for your glasses, contacts, dental work, and more.
There is a cool website called FSAstore.com (I have no affiliation with them). It’s a store and great resource that lists all the items that you can purchase using your FSA account.
Does your doctor prescribe that you go to the gym? That might be FSA eligible.
First aid supplies which include sunscreen and lip balms with sunscreen might be eligible!
Don’t limit your flexible spending account thinking!
Let's look at items that don’t qualify and note that they are usually elective, such as vitamins, herbal remedies, plastic surgery, and teeth whitening.
You’ll want to consult a tax preparer before you do this!
Strategize Your Flexible Spending Plan For Best Results
Do little Sally and Bobby need braces next year? If you contribute to cover those braces, you’ll get the tax benefit.
Let’s suppose that you need glasses or have a medical procedure coming up. You can bundle expenses in one year to utilize your FSA. That is a great strategy, but remember to go back and adjust your contributions for the year after.
Remember this is a “use it or lose” it account--the money doesn’t accumulate. You don’t want to lose it!
Dependent Care Flexible Spending Account
If you have childcare expenses you’ll want to check into this dependent care account. You can save upwards of $1,200 a year if you’re in the 24% tax bracket contributing the max amount to this account.
The max amount for 2019 is $5,000 (If you’re married filing joint, and if you’re a single head of household).
This is an account that covers babysitting, nursery, preschool, and summer day camps. It also covers before and after school care.
This fund also is for the care of your spouse or relative who is physically or mentally incapable of self-care and lives in your home.
Yes, you also get a childcare tax credit on your taxes. You can use both. You just can't use it for the same money, though.
Let’s say you spend $4,000 every year and you do the FSA for the $4,000, You can’t put it on your tax return and ask for the child tax credit. That doesn't work.
You can't get a double benefit for the same amount of money.
However, you can utilize this if you spend over $5,000. An example is you do $5,000 out of your FSA, and then you have additional expenses that rack up to $3,000.
You can use that $3,000 on your tax return and potentially get a childcare tax credit.
Keep in mind there are income limitations!
If you are interested in learning more be sure to listen to the One Million Apples podcast.
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