Don't Forfeit Valuable Health Care Tax Savings

(MoneyWatch)  We're getting close to the end of the year, and for those of you with health care Flexible Spending Accounts (FSA), you need to check your balances. Because FSAs are "use it or lose it" benefit plans, you don't want to leave any extra dollars in the plan on December 31st.

FSA. Flexible Spending Accounts are employee benefit plans that allow you to contribute money on a pretax basis to pay certain un-reimbursed medical expenses. You can generally pay for things such as doctor visits, dental expenses, braces for your kids, eyeglasses or prescription drugs.

Because the money is not subject to federal income tax, it makes your medical expenses more affordable. For instance, if you set aside $1,500 in your FSA for the year, you would save about $375 in taxes, assuming you're in the 25% income tax bracket. FSAs can be very helpful in lowering the cost of you health care, particularly if you have kids.

No rollover. But one problem with FSAs is that you can't roll the money over from year to year. This means if you set aside $1,500, you have to use it, or you lose it. Basically, the money must be retained by your employer if you don't use everything you set aside.

• Some plans do allow for a 2 1/2 month grace period after the end of the year during which any expenses incurred during the grace period can be applied against last year's balance, but you need to check with your plan to see if you have that option.
• In general, it's a good idea to try to spend what you have in the plan by the end of the year so you don't get caught leaving a balance on the table.

Two Months.This is a good time of the year to check with your plan administrator to see how much you have left in your FSA. If you've still got a balance, then you've got a little more than two months left to get some health care services scheduled.

While you need to check with your FSA plan administrator to confirm the expenses are reimbursable, here are a few ideas:

• Visit the eye doctor
• Visit the dentist
• Visit the orthodontist
• Get your annual physical
• Pay for a few months' worth of prescription drugs
• Pay for new medical equipment or supplies

If you're interested in the types of services that may qualify, you can check out IRS Publication 502 on qualified medical expenses.

Bottom line. FSAs are a nice way to save some taxes and lower the costs of health care for your family, but you need to be diligent about managing the accounts.

As with all tax matters, consult your individual tax advisor prior to making any decisions.