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Reduce taxes with flex spending accounts

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Michelle Blog PhotoFlex spending accounts are one of the most under-utilized benefits offered through employers with only 14% participation among eligible employees. Flex spending accounts allow you to put away pre-tax dollars—thus lowering your taxable income—to pay for qualified out-of-pocket medical and dependent care expenses.

In addition to reducing taxable income, money set aside in a flex account avoids the 7.65% Social Security and Medicare tax. So if you’re in the 15% income tax bracket, contributing $5,000 to your flex plan (the maximum for many employers’ plans) would cut your federal income tax bill by $1,133 next year.

Contributions to your 2013 flexible spending account are limited to $2,500 for medical expenses (each spouse with access to a flex spending account can contribute up to $2,500 to their individual account) and $5,000 per household for dependent care expenses.

Open enrollment season is often near the end of the calendar year. Check with your district’s business office or human resources department for deadlines specific to your benefit plan.

Michelle Slawny, CFP®