I just got a reminder from our company benefits manager that it’s open-enrollenment and  time to update my benefits for 2010, including how much I wanted to allocate for my health care spending account (also called a flexible spending account). Some companies offer these optional accounts as part of your benefits package.

 A Health Care Spending Account allows you to set aside a specific amount every year to use towards eligible health care expenses.  The total amount you budget for the year is divided among your pay periods, so an equal amount comes out each pay period. Your health care benefits provider can provide you with a list of eligible expenses.  I use my health care spending account for expenses related to prescriptions, deductibles, co-payments and deductibles at the doctor and dentist’s office, and even contact lenses, eyewear, and eye-care products like saline solution.

The BIG reason you should think about signing up for this benefit if it’s available where you work: the amount deducted from your paycheck each pay period is taken out PRE-TAX (including federal, state, and social security), so you maximize more of your own income, plus reduce your taxable income. And you’ve also budgeted for your health care expenses for the year, so it’s “money in the bank.” 

Here’s how to get started:

1. Review the list of eligible expenses for your benefits plan.
2. Review your medical expenses from last year.
3. Write down any additional eligible expenses you anticipate for the coming year.
4. Include at least money to cover your deductible expenditures.
5. Total it up to see what you’ll need for your health case spending account for the year.
6. Divide the total by the number of pay periods you have per year to see what will come out of your check per pay period.  Remember, this is pre-taxed, so you’re keeping more of what you earn (at least 25-30%, depending on your tax bracket).

One important thing to remember about health care savings accounts: USE IT or LOSE IT. At the end of the year, if you don’t use all the money in your health care savings account, you forfeit the money, so plan for the expenses carefully!

For more on health care spending accounts, Kiplinger.com has some great overviews, calculators, and information.