What are versatile spending accounts? And what do I must learn about them relating to my taxes?
Retirement Daily’s Robert Powell caught up with Jeffrey Levine, CPA and tax professional from Buckingham Strategic Wealth Partners, to reply the query.
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Quotes| Flexible Spending Accounts Explained
Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth
Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth
Recommended Read: Are Medical Expenses Tax Deductible?
Video Transcript| Jeffrey Levine, CPA and Tax Expert, Buckingham Strategic Wealth
Robert Powell: What do you should learn about versatile spending accounts? Well, right here to speak taxes with us is Jeffrey Levine from Buckingham Wealth Partners. Jeffrey, what’s up with FSAs?
Jeffrey Levine: Well, I believe at a excessive degree, we have to know that these are nice tax-efficient accounts. They will let you put in {dollars} right into a Flexible Spending Account, after which to spend these {dollars} you place in pre-tax, in different phrases with a deduction, to spend them tax-free, supplied you employ them for sure specified functions.
And that really leads us to our second key level of FSAs, and that there are a couple of kind of FSA. For occasion, there are dependent care FSAs that may aid you pay for issues like youngster care on your younger youngsters. There are additionally well being care FSAs that may aid you pay for medical bills. In reality, there are even various kinds of medical FSAs. There’s a normal FSA that can be utilized for people with out an HSA, after which a “limited purpose” versatile spending account for well being functions, for those who do have the HSA the place you are a bit bit extra restricted by way of what these {dollars} can be utilized for. Oftentimes it is dental or imaginative and prescient, but it surely’s not your conventional certified medical bills {that a} common “FSA” might provide.
Robert Powell: Right and sometimes, you both have to make use of it or lose it in a given 12 months?
Jeffrey Levine: So there are totally different guidelines for various kinds of accounts. And additionally employers can have a say in what the precise guidelines are. The excellent news right here is that on the medical facet, it’s a lot softer than it was a couple of years in the past. It was once that there was a tough use it or lose it coverage. Now employers can will let you carry ahead a certain quantity throughout the plan, as much as $550 proper now. But that could be inflated over time. It was once $500, and that’s the normal rule.
Now, just lately, due to some modifications as a result of coronavirus pandemic, there have been some extra flexibility allowed for people to hold ahead {dollars} from future years, successfully limitless quantities. But these modifications are going to be sunsetting right here within the close to future, and we are going to return to a use it or lose it, or a detailed to make use of it or lose it, with that small carryover supplied every year. So if you already know you are going to probably lose a few of these {dollars}, whether or not it means getting again to $0 or getting again to, for example, $500 in your account, spend no matter you’ll lose earlier than the tip of the 12 months on no matter you may presumably spend it on. Because in any other case it is gone out of your account and you do not get something again.
Editor’s Note: The content material was reviewed for tax accuracy by a TurboTax CPA professional.
Zach Faulds contributed to the writing of this text and produced the video and/or the graphics related to it.
Source: www.thestreet.com”