Here's Why It Pays to Put at Least $1,600 Into Your 2023 Flexible Spending Account

Chances are, you'll need it.

If you recently got a new job, or if you're still in the process of finalizing your employee benefits during your company's open enrollment period, then you may be tasked with deciding how much money to contribute to your 2023 flexible spending account (FSA). The upside of funding an FSA is getting a tax break on the money you put in.

Plus, if you save in an FSA, you'll have a dedicated source of money you can use to cover healthcare bills during the year. Many people skip out on medical care because they don't have enough money in a savings account to pay for it. But if you contribute to an FSA, you'll avoid a scenario where you have to suffer or put your health at risk due to a lack of funds.

Of course, there is one drawback of FSAs you should know about. These plans work on a use-it-or-lose-it basis. If you put $1,000 into an FSA but only rack up $500 worth of eligible medical expenses during the year, you'll risk forfeiting your remaining $500. Ouch.

That's why it's important to get your FSA contribution just right. You don't want to put too little money into your account. But you also don't want to contribute too much. New data, however, reveals that if you decide to put $1,600 into your 2023 FSA, there's a good chance none of that money will end up going to waste.

Why $1,600 may be the magic number

Data from FSAStore.com reveals that U.S. households spend an estimated $1,600 each year on healthcare products that are FSA-eligible. So if you put $1,600 into your 2023 FSA, there's a good chance you won't have trouble using it up.

Many people don't realize that it's not just doctor copays and prescription medication costs that are FSA-eligible. An FSA can also pay for many over-the-counter products, such as ointments, sunscreen, first aid products, and contact lens solution.

Plus, expenses like eyeglasses are FSA-eligible, so if you have multiple people in your household who wear glasses, that's an expense to factor into your calculations. And you can also use an FSA to purchase sunglasses as long as they're prescription.

How much money should you put into your 2023 FSA?

The maximum amount you can contribute to an FSA in 2023 is $3,050. It's a good idea to comb through your credit card bills from the past year and see how much you spent on medical expenses, including pharmacy and drugstore products that are FSA-eligible. That should give you a good baseline to work with.

But also, try to estimate upcoming expenses. If you have a child who you think will need braces in 2023, you may want to pad your FSA so there's money to pay for that. And if you just had a baby, you may want to add more money to your 2023 FSA in case you end up with more medical bills for your new child.

All told, it can be challenging to land on the ideal FSA contribution. And the fact that you're forced to commit to that number ahead of time makes these accounts fairly inflexible, despite their name. If you're not sure what to do for 2023, you may want to err on the side of underfunding your FSA so you don't wind up forfeiting money.