Flexible Spending Account Can Save You Dollars

One of the benefits offered to all full-time faculty and staff members in West Hills CCD is the flexible spending account—also known as a 125 plan.  Essentially, it allows an employee to have a set amount deducted from their paycheck every month that goes into a special account to pay “allowable” expenses for themselves and their dependants.

Allowable expenses can be medical and dental deductibles and co payments and, any expenses not covered by insurance. This includes prescription drugs. 

Childcare and adult daycare expenses for dependants are also allowable.  For a detailed list of what’s allowable, contact the HR department.

So what’s in it for the employee?  When the money is deducted from your gross pay, it is not taxed.  Depending on your tax bracket, that means most employees have an extra 25-40 percent more to spend on the “allowable” expenses—because the money hasn't been taxed.

I’ll share with you my personal experience with 125 plans. 

Years ago, when my children were young, I participated in a 125 plan to pay childcare expenses.  With two children in daycare, I was spending thousands of dollars a year on childcare expenses.  I had to estimate for the coming year (once the money goes in, you can’t get it back) and have a withholding done monthly that wasn’t taxed.  That money was then paid to the daycare center (it must be a licensed provider).  My savings in taxes were substantial and I was able to use that money to pay for daycare.

Today, one of those children is in college and I’m still using the 125 plan to cover her expenses.  She’s missing four adult teeth (it’s a genetic thing).  Those teeth are being replaced with dental implants that are very expensive—and not covered by insurance. I have a set amount deducted each month and that money is being paid to the dentist and oral surgeon as the procedures are performed.  I wasn’t taxed on the money that is being paid so my savings are substantial.

The only downside I see is that if you estimate inaccurately, you could potentially lose money.  I estimate very carefully and schedule appointments to maximize my savings under the 125 plan.  It works very well for my family.

The open enrollment period for a 125 plan is in the fall but you might start keeping track of expenses now to see if the plan will be right for you next year.

FlexAmerica manages the West Hills 125 plan.  For more details, talk to anyone in HR or visit the FlexAmerica website at www.flexamerica.com.

Frances