medical account - too much vs too little

Run the numbers.

Suppose you have $100 in earnings you are thinking about and your marginal tax rate is 30%.

If you put that $100 into the account, but use only $80, you're walking away from $20.

But because your marginal tax rate is 30%, if you hadn't put that $100 into the account, you'd have only taken home $70 to spend. So anything up to that first hundred bucks of medical care only costs you $70.

With the FSA, you "spent" $70 on $80 worth of medical care regardless of the $20 you walked away from - a savings of $10 (in after! tax money).

If you spent only $70 on medical bills, it's a wash. If you spent only $60 on medical bills, you overpaid because you used the FSA.

That was all a very verbose way of saing that any money in the FSA which is above (1 - tax rate) is 'free' money that, yes, you'd hate to walk away from, but doesn't cost you anything if you do so.

Include in the tax rate the 7.65% savings of SS and Medicare tax also.

-Mark Bole

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Also you could switch to an HSA where theres no time limit. My employer just offered the insurance this year, but had to find our own account administrator. A fee years back they were charging large fees, but there are some no-fee accounts now.

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