bluntmoney.com

Flexible spending, that is.

If your employer offers a flexible spending plan, it’s something to consider, especially if you have a good idea of what your medical expenses or childcare expenses usually run. The benefit to a flexible spending plan wasn’t immediately obvious to me, because at first it just sounded like you estimated your expenses and then paid them over the entire year, instead of when you actually incur them, and I didn’t really see why that would be such an advantage.

You do estimate your total expenses, and that amount is divided by however many pay periods you have in the year to get your per-pay-period amount. But the advantage is that you’re not taxed on that money. So it’s like getting a discount for every dollar you spend.

For example, if you normally spend $100 on medical expenses in a year, and you pay for them with after-tax money, you really had to earn $125 or so (depending on your tax bracket) in order to pay that $100. Using flexible spending is like giving yourself a discount.

There are a few things to be aware of when signing up for flexible spending (chief of which is probably that it’s a use-it-or-lose-it benefit) so be sure you understand the details from your plan administrator before signing up. Talk with your tax person about any other implications you might need to be aware of. But don’t avoid checking out this benefit if it’s offered to you. You could be very glad you did.

If you like this article, please visit my new home at www.moneycrush.com or subscribe to the new RSS feed. Thanks for visiting!

• Why You Should Have a Financial Plan. "Thy desires must be strong and definite. General desires are but weak longings. For a man to wish to be rich is of little purpose....
• Tax Season Is Finally Over! Or is it? The mad rush up to April 15th is finally over!  We're past tax season and having to worry about our income tax return.  No more...
• California To Delay Tax Refunds Due To Budget Crunch. Although I don't live in California or ever get a refund anymore, I would not be too thrilled with this: California's budget meltdown is about...