What is a significant benefit of a Flexible Spending Account (FSA)?

A significant benefit of a Flexible Spending Account (FSA) is that it enables pre-tax savings for eligible expenses. When employees deposit money into an FSA, those contributions are made before taxes are deducted from their paychecks. This means that individuals can reduce their taxable income, leading to potential tax savings. The funds in an FSA can be used to pay for various out-of-pocket health expenses, such as copays, deductibles, and certain medical supplies.

Using pre-tax dollars for these expenses allows employees to effectively stretch their earnings further, as they are not taxed on the portion of their income contributed to the FSA. This can lead to significant savings over time, especially for those who anticipate regular medical expenses. However, it’s important to note that FSAs have a "use-it-or-lose-it" provision, meaning that any unused funds at the end of the plan year may be forfeited, which encourages careful budgeting and planning for eligible medical costs.