It’s That Time of Year – How to Calculate Your FSA Contribution Amount for 2012

by Darwin on October 28, 2011

For those of you who have a Flex Savings Account option at work, it’s time to set the total annual allotment for 2012 before the year starts.  I’ve always had mixed emotions about this provision of the tax code.  On one hand, you’re allowed to deduct medical expenses from your income normally subject to federal income tax.  Great.  On the other hand, you have to “guess” how much you’re going to spend the next year.  Reason being, if you over-estimate and set aside too much in an FSA, then you end up in a “use it or lose it” situation and if you estimate too low then you left money on the table.  Therefore, it behooves you to do the best job you can in estimating out your costs and then have some contingency plans if you’re high or how.  Here’s how I did it:

I hit the problem from both sides – first, in seeing what I spent last year and for the current year in deductible expenses as a baseline, then alternatively, estimating out what I see for next year.  By averaging the three (perhaps giving some additional weight to next year’s projection), I come up with a reasonable estimate.  We’re setting aside a seemingly high $2500 for next year for the family.  People with a really good health plan and a healthy family often end up paying next to nothing out of pocket.  Unfortunately, we have a large annual expenditure which isn’t covered by any health insurance or state services.  One of our children requires special services which are unreimbursed, but are deductible.  That ends up running about $2000 each year.  On top of that, being in the 90/10 coverage plan, it’s easy to rack up another $500 throughout the year with various doctors’ visit and ER trips, not to mention medicines.

Flexibility in the Flex Spending Account

What I like to do is have some room for maneuvering later in the year, whereby I can push some large expenses into the current year or out into the next year.  For instance, I intentionally have my annual eye appointment toward the end of the year, so if I need a new pair of glasses in a given year, I can decide to spend the money in the current tax year or just wait a month and push it to the next year.  In years past, you were able to stock up on OTC medicines which was a good way to have some flexibility, but we lost that provision with Obama’s healthcare reform.  OTC meds are no longer deductible (thanks)!  However, there are some other ways to be flexible.  For one, there’s a voluntary surgery I’ve been putting off for some time and I’ll time that accordingly (yes, 3 kids is enough!, so I’ll be takin’ care of business).  And I can also ask my child’s therapist to bill early/late around the December timeframe to get that fee in the right year.

What is Your Annual FSA Amount and How Do You Maintain Flexibility?

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{ 1 comment… read it below or add one }

1 PG November 18, 2011 at 12:30 am

Hi Darwin,

Sorry I’m writing on an unrelated post, but figured it’s more likely you’ll see my comment.
I’m trying to replicate your leveraged ETFs strategy, but my broker (MBTrading) only allows some of them to be shorted, and never both in the pair.
So my question is, are you still able to short them all, and if yes, who’s your broker?

Thanks!

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