How Much Should I Contribute to My FSA?

If you're new to a Flexible Spending Account (FSA), determining your annual contribution can be confusing. Here's a simple guide to help you decide how much to set aside, based on your healthcare needs and financial situation.

1. Understand IRS Contribution Limits

Each year, the IRS sets a maximum amount you can contribute to your Health FSA. This limit can change, so it's essential to review the most current guidelines:

• 2025 Limits (subject to change per IRS):

  • $3,300 contribution limit

For the most up-to-date information, visit the IRS page on Health FSAs or check the official IRS website on Health FSAs.

2. Evaluate Your Healthcare Needs

When setting your FSA contribution, consider:

• Expected Medical Costs: Doctor visits, specialist appointments, prescriptions, etc.

• Dental & Vision Expenses: Many FSA plans cover these as well.

• Planned Procedures: Surgeries or treatments you anticipate in the coming year.

By estimating your healthcare expenses, you can arrive at a realistic FSA contribution amount.

3. Remember the “Use It or Lose It” Rule

Unlike a Health Savings Account (HSA), an FSA typically requires you to use the funds within the plan year. Some employers offer:

• Grace Period: An extra 2½ months to spend your funds.

• Carryover: The option to roll over a small portion of unused funds (up to a certain limit) into the next plan year.

Check your employer's plan rules to see if you have either of these options. If not, unused funds at the end of the year are forfeited.

4. Leverage Tax Benefits

FSAs use pre-tax dollars, which can lower your overall taxable income. Here's how you benefit:

• Reduced Taxable Income: Money contributed to your FSA is not subject to federal income tax, Social Security tax, or Medicare tax.

• Immediate Availability: The full amount you choose to contribute is typically available at the start of the plan year, even though contributions are deducted gradually from your paychecks.

5. Plan for Eligible Expenses

FSAs can be used for a variety of healthcare costs, including:

• Deductibles and Co-pays

• Dental and Vision Services

• Prescription Medications

• Certain Over-the-Counter (OTC) Items (as allowed by IRS rules)

Review your employer's documentation or the IRS Publication 969 for a complete list of eligible expenses.

6. Decide on Your Contribution

When choosing your FSA contribution:

• Review Last Year's Expenses: If you kept records of your medical spending, this can be a good benchmark.

• Anticipate Changes: Have you recently started new medications, or are you planning for a major procedure?

• Avoid Overcontributing: Since you may lose unused funds, aim for an amount you're confident you'll use.

7. Get More Information

• Official Guidelines: Visit IRS Publication 969 for the latest rules on FSAs.

• Employer Resources: Your HR department or benefits administrator can provide plan-specific details, including carryover or grace period provisions.

In Summary

An FSA can help you save on healthcare expenses by letting you set aside pre-tax dollars. However, with the “use it or lose it” rule, it's wise to estimate your medical costs carefully and avoid overcontributing. By reviewing your anticipated healthcare needs and following IRS guidelines, you can maximize your FSA and enjoy the tax benefits it provides.

For personalized advice, consult with your employer's HR department, a benefits specialist, or a financial advisor. Feel free to reach out to the Burst Team too – we'd be happy to help.