Managing A Flexible Spending Account
Help! What's the most effective way to create and manage an account for a flexible spending account? Should it be a 'tracking' account or a 'budget' account? I currently submit eligible expenses for reimbursement and have set my FSA account set up as a tracking account. I'm thinking it should be a budget account so the funds, which are available in full at the beginning of the plan year, can be allocated to a category. In my checking account, from which all medical-related items are paid to the provider, I have medical budget categories for 'reimbursed' and 'non-reimbursed', but they aren't currently budget funded. When I enter a transaction in checking, I use the corresponding reimbursement category, but until I submit the expense the category appears underfunded. I need my checking account to balance, so need to enter transactions accurately there. Should I be entering a 'transfer' transaction from the FSA account to checking when I submit a reimbursement request? is there some other nifty way to handle this? I'm sure there are multiple ways of handling the situation. Any and all thoughts are welcome.
My personal preference for dealing with all reimbursable expenses is to use an off-budget tracking account and to prefund the budget category I use for the expenditures. I pay the full cost of the expense with my own money, then I use tracking accounts for reimbursable health claims I make against insurance and a health spending account. When the funds come in, I record a transfer from tracking account back to an on-budget account (usually chequing), and I categorize the incoming funds directly back to the category I spent from (usually medical/dental) rather than categorizing the incoming as Inflow: To Be Budgeted.
Not everyone is financially able to pay for expenses with their own money. Last year, for example, I used a credit card for a rather large medical expense, and waited for the insurance claim reimbursement to repay the credit card. Both types of scenarios are described in the YNAB help document.
Edited to add: My HSA is managed by a third party and I can only access the funds by making a claim, so keeping it off-budget makes the most sense for me. If your FSA is something you can spend from directly, then it may very well make perfect sense to have it as an on-budget account.
Hi Blue Deer !
I know you mentioned paying the medical expenses from your Checking account, but how are you reimbursed? If you pay for the expenses upfront and then money is transferred from the FSA to your Checking account as a reimbursement, then I think it would be best to leave that account off budget. Even though those funds are there, you cover that spending with your money upfront and then receive funds to cover it - as talked about in the article HappyDance shared.
If you can access that account upfront (meaning you don't have to cover those expenses with your own funds initially), then I would suggest including it as a Budget account. If you have access to those funds starting at the beginning of the year, then you can use them to budget towards the Medical expenses in your budget.
I hope the Help Doc is helpful, but let me know if you still have questions!
PS. I went ahead and moved this from the Community Challenges section to the Q&A section to hopefully have others weigh-in. :)
I actually use two different methods for my two FSAs. For my healthcare FSA, I have an on-budget account. On Jan 1 that account has an inflow for the total FSA election amount, which I categorize as Inflow:TBB. I then immediately budget it to the medical category. All medical expenses are categorized as medical, and flagged purple and get a "Do FSA" memo. When the reimbursement happens, it's an on-budget transfer. It works pretty well.
For my Dependent Care FSA, I budget for the category with regular income so there is enough to pay bills when they arrive, and then submit receipts/claim forms to the FSA administrator. When the money comes in, usually once a month, I categorize it as Inflow:TBB and budget it with all my paycheck income when I do my budgeting at the beginning of each month.
When I had an FSA, I never kept track of it in YNAB (It just didn't make sense to me to track it there since it would just have to be closed or zeroed out at year end). I typically just used the FSA debit card for those expenses.
When I didn't use the debit card and paid out of my checking: I had two medical accounts - One that is for qualified reimbursement and one for the things that didn't qualify. When I received the money, I just put it directly into the Qualified Medical category and let it zero out on it's own. (avoiding the TBB all together) i.e. Payee: (name of FSA handling company), Category: Medical(FSA Qualified), Inflow: Amount
I still use this method for my HSA, except that since I don't lose the money at year end (and I can use it for retirement planning as well), I have my HSA as a tracking account and just make a transfer to the Qualified Medical category.
I found this to be the simplest and that way I'm able to bypass a step by avoiding the TBB and then have to budget it from there.
Since the topic switched to HSAs, I used to have one. I wish I still did... But, the advice I received several years back, was to fund the HSA and use it as a tax-deferred savings account. You can hold the funds in an HSA (and spend) without an HDHP. The thought was, max your deferments to the account, but use cash for medical expenses. This way, you can have a fully funded medical account at retirement, to hedge health care costs. (LOL, and I happened on this thread searching for what folks are doing with their FSAs :))