Flexible Spending Account (FSA)
Definition
An employer-sponsored account where you contribute pre-tax money for medical or dependent care expenses. You save taxes (typically 15-40% depending on your bracket), but must spend the money by year-end or lose it. Different from HSA — limited annual amount.
Why It Matters
FSAs can save serious money if you know your medical expenses. Spending $2,000 in FSA contributions saves $600-800 in taxes if you're in a 30-40% bracket. But the 'use it or lose it' rule means careful planning.
Example
Expect $2,000 in medical costs (co-pays, contact lenses, therapy). Contribute $2,000 to FSA pre-tax. You save $600 in taxes (30% bracket). You spend that $600 on the same expenses you'd pay for anyway, so FSA provided a pure win.
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