3 Questions to Ask Before Opening an FSA for 2023

Run through all of these before funding an FSA.

Now that we're into the month of October, many companies are kicking off their open enrollment periods. During this time, you'll have an opportunity to select your employee benefits for 2023, and one benefit you may need to make a decision on is your flexible spending account (FSA).

FSAs let you set aside pre-tax dollars for healthcare spending (they also let you allocate funds to dependent care, but for the purpose of this discussion, we're talking healthcare). So if you put $1,000 into an FSA, that's $1,000 of earnings the IRS won't tax you on. But before you decide to participate in an FSA for 2023, be sure to run through these three questions.

1. How much did I spend on healthcare in 2022?

One drawback of FSAs is that you're required to commit to a specific contribution amount ahead of time. You can't change that contribution amount unless you experience a life change, like a marriage, divorce, or birth of a child.

If you underfund your FSA, you won't get the maximum benefit from that account. If you overfund your FSA, you might end up forfeiting money you don't manage to spend by the time your plan year comes to an end.

Before you open an FSA for 2023, take the time to review your healthcare spending in 2022. Comb through bank statements, credit card statements, and other files to see how much you spent in total on things like doctor appointments and copays. You can use that figure to help guide your decision for the upcoming year.

2. Am I anticipating new healthcare expenses in 2023?

Maybe your child needs braces and is expected to get them next year. Or maybe you're starting to have trouble seeing, and you anticipate having to get new contacts lenses and eyeglasses in the near future. These are expenses you should account for when deciding how much money to put into your 2023 FSA.

Keep in mind that your healthcare expenses might decline, too. If, for example, your child just got their braces off, that may be one healthcare bill you won't face in the coming year, which could make the case for reducing your FSA contribution for 2023.

3. Is my health insurance plan changing in 2023?

If you'll be getting a new health insurance plan, that could mean getting stuck with higher copays and deductibles. And that could influence the amount you put into your 2023 FSA.

Similarly, you may decide to sign up for a different health insurance plan altogether that's compatible with a health savings account (HSA). You generally can't have an HSA and FSA at the same time, so if that's the case, you may want to opt out of an FSA altogether, since HSAs are actually a lot more flexible than FSAs and also offer more tax benefits.

Make the right call

Funding an FSA could save you money. But before you commit to next year's account, make sure to address these questions so you don't end up regretting your decision. The last thing you want to do is overfund your FSA, put in too little money, or end up forgoing an even better savings choice in the form of an HSA.