A use-it-or-lose-it account for healthcare spending — here's what to know before you enroll.
An FSA — Flexible Spending Account — is a pre-tax account you can use to pay for eligible healthcare expenses. It's similar to an HSA, but with some important differences you need to understand.
You elect an amount during open enrollment, and that money is deducted from your paycheck pre-tax throughout the year. The full annual amount is available to you on January 1st — even though you haven't finished contributing yet.
This is where people get burned. FSA money generally does not roll over. If you don't spend it by the end of the plan year (or a short grace period), you forfeit the balance. Your employer may offer a grace period of up to 2.5 months, or a $680 rollover — but not both, and not all employers offer either.
$3,400/year per employee (your spouse can contribute the same amount in their FSA if their employer offers one).
Limits are set annually by the IRS. The link above always points to the current year's figures.
Same general categories as an HSA: doctor visits, prescriptions, dental, vision, medical equipment, and more. Some plans include a dependent care FSA for childcare costs — that's a separate account.
If you have the choice and you're on an HDHP, the HSA wins almost every time.