Flexible Saving Account Pros and Cons

The flexible saving account is a tool that many people use to fund health expenses. This is a type of account that is offered through various employers. It is also referred to as a flexible spending account. Here are some of the pros and cons associated with the flexible saving account.

Pros

This type of account has several benefits that you will be able to take advantage of as an account holder. One of the biggest advantages of using this type of account is that the money that you contribute is tax-free. You are able to deduct a portion of your paycheck and deposit it directly into the flexible saving account. The contributions that you make essentially lower your taxable income for the year. This provides you with a nice tax deduction at the end of the year.

Another big advantage with this type of account is that it provides you with a way to pay for your medical expenses. Although you most likely have insurance that will pay for the majority of your expenses, minor medical expenses that are covered only partially if at all tend to come up. For example, you might have a co-pay for a doctor's visit. Instead of paying for it with part of your regular income, you can pay for it with funds from your flexible saving account. You can also use the money from this account to pay for things like dental visits, vision treatments and prescription bills. This can really reduce the amount of money that has to come out of your savings in order to pay for various medical expenses. Instead of paying the federal government more in taxes, you will be able to use that money to pay for your medical expenses instead.

Cons

Although this account definitely has some advantages, there are a few drawbacks that you will have to deal with as well. One of the biggest problems with this type of account is that the money does not roll over from one year to the next. Throughout the year, you will most likely be making regular contributions to your flexible saving account out of your paycheck. Many people do this so that they can get a nice tax deduction and put away money for medical expenses. However, when you put money into the account, you lose the money at the end of the year. This makes it very hard to plan how much you should contribute to your account. On the one hand, you do not want to cut yourself short when it comes to paying for medical expenses with tax-free money. On the other hand, you do not want to contribute a lot of money that will just be lost at the end of the year.

Another problem with this type of account is that it can jeopardize your child tax credit. If you pay for childcare expenses out of your flexible spending account, you will not be able to take the child tax deduction on your tax return.

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