A flex spending account is a great resource to pay for out-of-pocket health care costs. You fund this account with money from your paycheck, pre-tax, and you’ll be able to save a little money in the process.

From co-pays to prescription drugs, healthcare can be expensive. With a flex spending account, you can save money ahead of time tax-free. While the general purpose is easy enough to understand, the tricky part can be knowing how much to put into your account.

Here’s a quick overview of everything you need to know about flex spending and how much to contribute.

What is a flex spending account, and what should you contribute?

Your payroll funds flex spending accounts. You can contribute a portion of your income each pay period to your flex spending account to cover out-of-pocket expenses. A flex spending account, also known as an FSA, can come with a use it or lose it policy. This means that at the end of the year, if you haven’t used all of the money in your account, you’ll lose those funds.

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Because you may lose the money, you want to be careful about how much you put into it. If you don’t put enough in, you’ll have to pay taxes on your income as you normally would.

While it is almost impossible to know exactly how much you’ll use in a given year, with a little pre-planning, you may be able to guess somewhere in the ballpark. To figure out how much money you should contribute, there are a few considerations to think about.

Make a list of all of your anticipated health care needs

To help determine how much money you should put into your flex savings account each year, one of the best things you can do is to make a list of all of your health care costs. These costs can be an anticipated doctor visit, prescriptions, and specialty appointments such as physical therapy or an eye doctor.

You should also throw in a couple of one-off visits for sicknesses to a doctor or an urgent care facility. If you have kids, you can probably double that number. You also might want to include an emergency room visit, just in case.

One of the best things you can do is to make a list of all of your health care costs

To estimate the costs of these visits or procedures, you can take a look at your insurer’s website. You can also ask your human resources department if you need help finding them.

If you’re having an upcoming procedure or surgery done in the coming year, you can ask for the estimated costs ahead of time. With childbirth, for example, there is usually a financial counselor on hand to go over what your out of pocket costs will be.

Get close to your deductible

The vast majority of insured people have deductibles. Currently, deductibles are on the rise in the United States. A recent study from the Kaiser Family Foundation shows that the deductible rates are currently rising faster than the average income.

In theory, if everyone was financially able to put away their deductible amount in their FSA, this would be ideal. This just isn’t financially possible in many cases. Aim to get as close as you can if you know you’re going to meet your deductible.

If you’re a person who doesn’t regularly see a doctor, you may not come close to meeting your deductible each year. Let’s say you don’t have any prescriptions, so you should adjust your contribution number accordingly since you won’t hit your deductible.

The good news is that if the end of the year is coming and you haven’t used your funds, you can still use it on elective procedures or supplies in many cases. If you see this happening, make a plan for things you’d like to do to use it up. Cosmetic dentistry, the chiropractor, and acupuncture will all typically qualify.

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