New rules affect 2011 flex spending accounts

WASHINGTON (10/1/10)--Fall means football games to watch, maybe some raking, and, for those of us with flexible spending accounts (FSAs), it's time to plan how much to set aside for 2011.

While contributing to a health-care FSA is a great way to use tax-free payroll deductions to cover medical expenses, health-care reform will change the ways you can use funds in 2011 (Kiplinger Oct. 15).

Here are some examples:

Over-the-counter drugs no longer qualify without a prescription. Starting in 2011, you'll no longer be able to use FSA money for non-prescription drugs, except insulin. Further, if your employer gives you until March 15, 2011, to use up the money in your account from 2010, you still won't be able to spend it on over-the-counter drugs without a prescription after Dec. 31.If you regularly use over-the-counter medications, such as pain relievers or allergy medications, ask your physician for a prescription. You may qualify for reimbursement in 2011 by submitting the prescription number along with the receipt.

New rules may cover adult children's expenses. Since many employers have expanded the definition of dependent to include any child younger than 27 at the end of the year, you may be able to use money in your FSA for adult children's out-of-pocket expenses. Previously, this worked only if the child was a dependent for tax purposes.

FSA limits will be lower in the future. FSA limits aren't changing next year, but the maximum limit will shrink to $2,500 in 2013. So if you're considering a medical procedure that isn't covered by insurance--such as laser eye surgery--you might want to schedule it in 2011 or 2012.

With a little planning, an FSA is a great money-saving tool. To learn more about benefits of budgeting, see the Home & Family Finance Resource Center calculator "Budget Blueprint."