Your Essential Guide to Flexible Spending Accounts

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flexible spending account

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In February 2015, my wife gave birth to our first child. But instead of paying the huge bill out of pocket, our checking account balance dropped by only a few hundred dollars. The rest was covered by the flexible spending account (FSA) I contributed to monthly.

Not only did we avoid draining our bank account, but the money I contributed to the FSA was made pre-tax, giving us hundreds of dollars in tax savings every year.

If you have consistent health care needs or a big health care event coming up, find out why you should consider setting up an FSA today.

What is a flexible spending account?

Sixty-five percent of employers offer FSAs, according to the Society for Human Resource Management. Designed to help you pay the cost of health care, an FSA covers a wide range of eligible medical expenses (more on those expenses later).

There are some ineligible expenses, though, so make sure you double-check before trying to use your funds.

How flexible spending accounts work

You can set up an FSA during your employer’s open enrollment period for the next year and determine how much you want in the account up to that year’s limit. In 2018, you’ll be able to contribute up to $2,650 for the year.

On Jan. 1 the following year, you’ll get the full amount in your FSA to spend on eligible expenses. Then, your employer will deduct the amount from your paychecks throughout the year before taxes.

For example, if you want $2,400 in your FSA, your employer will deduct the following from each paycheck, depending on how often you get paid:

  • $200 if you’re paid monthly
  • $100 if you’re paid semimonthly
  • $92.31 if you’re paid biweekly
  • $46.15 if you’re paid weekly

The benefit you get comes directly from the tax savings. For example, if you contribute $2,400 throughout the year and have an effective tax rate of 20 percent, you’ll save $480 in taxes that year.

$2,400 x 20 percent = $480

And if you’re lucky, your employer also will contribute to your FSA, giving you even more savings. For instance, my employer at the time my son was born matched 100 percent of my contributions up to $1,000.

I set my FSA amount at $2,500, so I contributed $1,500 throughout the year, and my employer contributed the other $1,000.

How to use your flexible spending account funds

You’ll typically get a debit card in the mail that’s tied to your FSA, making it easy to use your FSA money. That said, you also can pay for the medical costs out of pocket and submit a request for reimbursement.

To get the reimbursement, you’ll usually scan and upload or fax a copy of your receipt that shows the date of the service or purchase, a description of the service or product, and the cost.

Additionally, you might get a request to substantiate certain debit card purchases to make sure they’re eligible. The same process applies as if you were requesting a reimbursement.

Qualified health care expenses

Some of the eligible costs you can cover with your FSA money include:

  • Doctor visit copays
  • Doctor and specialist procedures
  • Dental exams and procedures
  • Vision exams, glasses, and contacts
  • Prescription medicines
  • Some over-the-counter medicines
  • Physical therapy
  • Psychiatric care
  • Hospital stays and services

You can find a complete list of eligible expenses on the Internal Revenue Service (IRS) website.

Use it or lose it

The main drawback to FSAs is the fact that you have to use the account balance by the end of the year. Otherwise, you lose it.

To mitigate this problem, employers can (but are not required to) offer one of two options:

  1. You can carry over up to $500 to the following year.
  2. You can have a grace period of up to two and a half months after the year is over to count medical expenses toward the previous year.

If you’re coming up on the end of the year and are afraid you’ll lose your FSA funds, consider prepaying for a service you regularly use, such as chiropractic adjustments or physical therapy. You also can check out the FSA Store, where you can find thousands of FSA-approved products.

You can’t take it with you

If you quit your job or are terminated, the FSA funds don’t follow you to your new employer. That said, if you end up using all the funds before the end of the year and are terminated or quit, you don’t have to pay back the remainder in most cases.

That’s what happened to me in 2015. I received $2,500 in my FSA in January, my son was born in February, and I drained the account to pay the hospital bill. Then, I left the company in March without needing to make any more contributions to the FSA.

Some FSA plans might require that your remaining contributions be taken from your final paycheck, however, so be sure to check with your employer.

Flexible spending account vs. health savings account

Another option to consider as you look for ways to save on health care costs is a health savings account (HSA). An HSA functions like a normal savings or investment account. You can contribute to it regularly or not at all.

Unlike an FSA, an HSA comes with the following benefits:

  • You can take it with you wherever you go.
  • You’re not required to use your funds within a set time frame.
  • You can invest your HSA funds to compound your savings once you have at least $2,000.
  • You can use it to save for health care costs in retirement.
  • In 2018, you can contribute up to $3,450 if you’re single or up to $6,900 if you have a family.

Some employers also make contributions to HSA accounts as a benefit.

That said, not everyone can contribute to an HSA. To qualify, you have to have a high-deductible health plan (HDHP), which means your health insurance must have a deductible of at least $1,350 on a self-only plan or $2,700 on a family plan.

You also can’t open an HSA if someone else can claim you as a dependent on their tax return or if you’re covered under a secondary health insurance plan that doesn’t meet the HDHP minimums.

Is a flexible spending account right for you?

You can’t have both an FSA and an HSA, but you should seriously consider getting one or the other if you qualify.

The FSA is particularly helpful if you don’t qualify for an HSA, but you need to make sure you use the funds each year. So, if you don’t visit the doctor often, it might not be worth it.

If you do qualify for an HSA, though, you’ll be better off knowing you can take your money wherever you go and that there’s no risk of forfeiture. The investment element of an HSA can be risky, but it also can offer tax-free returns. Plus, you don’t have to invest your money if you don’t want to.

Whichever option you choose, do the research to see which one is better for your situation. If you qualify, either an FSA or HSA can help you better manage both short- and long-term health costs.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit We also have several resources available to help the borrower make a decision at, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.