Flexible spending accounts are utilized today by people looking to pay for various medical expenses, and function in a similar fashion to Health Savings Accounts (HSAs). A major difference however is that FSAs are only available through group/employer health insurance plans.

So how does a FSA work?

FSAs allow employees to allocate a specific amount of their yearly earnings at the beginning of a year into an account used for medical expenses. A nice feature about FSAs is the fact that they are essentially prefunded. What this means is that although you contribute small amounts from you paychecks each month, the entire fund will be available from the first day the FSA is put into force. Furthermore, you also get a tax break on the money in your FSA because it is not subject to payroll taxes.

When you go to use your FSA for medical expenses (deductibles, copayments, prescriptions) you are able to either directly withdraw the funds with a debit card or make a paper claim.

What’s the major difference between a health savings account and a flexible savings account?

A major difference between a FSA and a HSA is that with an FSA you either use or lose the funds. So, any unused money in your FSA at the end of your coverage period will be refunded to your company. With a HSA the money is able to rollover from year to year, and actually can be used as a great way to create additional savings for retirement.

My advice if you are currently using a FSA is to always use up your funds before the coverage period ends. You may even consider treating yourself to a new pair of prescription glasses just to have a backup. Remember, the money in your FSA is money that YOU earned, so don’t let it go to waste.

To learn more about the best way to save money on your health insurance, or how to better utilize your health accounts speak with an Advisor at MyInsuranceExpert.com.