Flexable Spending Account for self employed

I was hoping some self employed people could help chime in here without getting into the huge can of worms that is health insurance today (I say today as if I'm old, but I'm 28). I work for a medium sized company and we have flex spending accounts, so if I anticipate lots of dental work in 2011 I can kick some pre-tax $ in to spend on the work. My father recently found out he is going to need some significant dental work done, but he is self employed, what can he do to not pay w/ post tax $ knowing he won't hit the 7.5% of AGI required to deduct the dental expenses. Thanks for your help!

I was self employed for ten years, I never used this but it seamed they had a health savings acount where you put pretax money in, and used it for medical needs, and it could grow like a IRA, and if you didn't spend it when you retired it was available like a IRA. Since he is self employed he should see his tax advisor, wikapedia even has some information, again he needs a tax adviser that is up on this stuff.

While I was working I had a flexible spending account. It turned out to be a very good deal for me. I setup pay deductions to cover the cost of my daughter's braces. There were three payments required, up front amount, after braces were installed and then payments with each adjustment visit. Flexible spending accounts allow a uniform monthly deduction from my pay.

There were some strange rules, imposed by the IRS I was told. In a given year you had to use it or lose it. There were always some in the company that didn't use it all. Apparently in a effort to make sure the pot got spent you could draw on your budgeted annual amount even if you hadn't built up the amount of the bill. Well, I got laid off in a downsizing. I had drawn much more on my account than I had contributed. I asked how they were going to collect the future payments from me. I wouldn't have to make payments after I was laid off. Wow! So I promptly got a bill from the dentist for the entire amount before my actual termination date. They paid it. Amazing!

Make sure you understand the rules. It's likely changed by now; my experience was 15+ years ago. Some of the regulations didn't make business sense. More like social policy, rather than a budgeting account.

Yes, the rules have changed quite a bit.

http://www.wealthinformatics.com/2010/0 ... uidelines/

An HSA (Health Savings Account) works a lot like a medical Flex Benefits account. An HSA is better, because you do NOT have to use-or-lose your contributions by the end of the year. The money in the account can be carried over indefinitely from year to year, and at some age (I don't remember exactly what age) you can withdraw it for any purpose without paying a penalty -- in effect it becomes like an IRA at that point, you pay income tax if you withdraw it for non-medical purposes. So if you are maxed out on your other IRA contributions, it provides a few thousand dollars more that you can shelter temporarily from taxes.

The catch with an HSA is that not everyone can have one. I have high-deductible health insurance so I can have an HSA. For your father, you would have to ask Google or consult a tax adviser to see if he is eligible. Sometimes there are identical programs under different names for different groups of people, as with a 401(k) that is almost identical to a 403(b).

Thanks for the responses guys, Yanche that is very interesting. A similar story from my last employer, a friend of mine contributed the max amount into his FSA during open enroll in Nov, and then in Jan had lasic eye surgery performed for 7k I believe without fully funding his account (the max flex spending account limit wasn't 7k, it might have been 5k). That friend then voluntarily left the company in may and received no bill for the 7 months of FSA he spent and did not fund. The employer is very large as well, over 200k employees. I am surprised this type of loophole exist, it must fall on a loss for the company or the administrator.

I have done some more google searching and came up with a HSA (health savings account) as part of a HDHP (high deductible health plan) as something he might need to do in order to pay with pre-tax dollars. I was hoping someone on this board who is self employed and has this coverage arrangement could chime in on plan administrators they are either happy or unhappy with. My fathers tax pro is turbo tax, but maybe I can convince him to talk to one here in the near future, he is convinced that the idea of contributing $ for future health care cost is only something that people enjoy who work at companies with qualified plans.

You know its interesting, my father is part of a very small manufacturing business that is growing and he is always talking to me about coming back to where I grew up to work there and maybe take it over some day (I live 6 hrs away now), but the pro's/con's compared to the lifestyle I enjoy with my medium sized employer now really are startling I guess. My father works 6 days a week, sometimes sundays, and I think the only paid holidays he takes are thanksgiving and x-mas, he is basically on his own for health insurance, there isn't anyone to cover for him when he does take some vacation, so often times his vacation is just whitetail hunting in the fall but putting in a few hrs midday at the shop to get the essentials done. He also has numerous house projects that are lacking his time to put in to see to completion, and worst of all he is fighting local/state government's greedy tax hand that seems to think business is booming and they deserve more. So far the only 2 pro's I see to his arrangement vs mine are you don't have a boss to answer to and unlimited earning potential based on the success of the business. To contrast in my current engineering position, I sometimes take vacations to far away places and tell people I won't be available on e-mail or phone, I enjoy health care and 401k, I spend many weekends working on my house (including my vf3k stoker install), I have a constant fixed paycheck so it is easy for me to budget, I receive a bonus if I meet personal goals and my company isn't very large so there is upward mobility, I am one promotion and 2.5 yrs of continuous service away from another 2 weeks paid vacation w/ the option to buy a week, so I could potentially have 5 weeks + 12 paid holidays and sick days under the age of 35. Suffice to say, I feel as though even if I could earn double my current annual salary w/ the business because it grows (this is far from true today), I don't think I would be tempted to make the move because I still would have to answer to Uncle Sam's greedy hand and wouldn't get nearly as much free time as I do now.

This is not right, new small businesses is what helped make this country an economic might, government has to be kinder to all the people who appear on dirty Jobs that can't afford lobbyist.

Might want to dig a little deeper with HSA's. In all the Obamacare discussions, I've heard they might be going away. Obviously, you never can tell which way the Feds will go, but you don't want to have the rug pulled out from under you either.

jpete wrote:Might want to dig a little deeper with HSA's. In all the Obamacare discussions, I've heard they might be going away.

According to Consumer Reports, "...[as to] the health reform law. Nothing in it changes the existence or functioning of HSAs, except that starting in 2011, the penalty for non-medical withdrawals for under-65 taxpayers increases to 20 percent."

jpete wrote:Might want to dig a little deeper with HSA's. In all the Obamacare discussions, I've heard they might be going away. Obviously, you never can tell which way the Feds will go, but you don't want to have the rug pulled out from under you either.

not going away at all you just can't buy your over the counter stuff any more, and they will limit how much tax free you can contribute,

http://www.jlbghealth.com/blog/archives ... eform.html

In my case- 30 yrs. old and single... I have an HSA insurance plan, it is high deductable, $ 2500.00 to be exact per year... However, the IRS will allow a single person to contribute a maximum of $ 3000.00 per year into his/her account... Now, my employer contributes 33% of $ 2500.00 (thats $825.00 large) into my account per year, also, I am able to put any unused vacation time toward the HSA at my current hourly rate... Now, of course there is a premium that is also taken out of my pay on a per pay basis under section 125/health which amounts to $46.00 per pay/semi-monthly (two pays per month)... Yes, an HSA is a very wise choice for a young generally healthy person... It is in fact much like an IRA, it WILL rollover from year to year and it can be used for non-health purchases and as long as you refund the dollars that you used within 12 months of removal there is no penalty... I am setup to contribute the full $ 3000.00 as allowed via equal pre-tax deductions per pay... Sure the deductable is high, but EVERYTHING, EVERY SERVICE, is 100% in network coverage after you spend that $2500.00 per year... You will NOT spend more than $2500.00 on medical care per year, that to me is concrete as I don't want to be blindsided by rediculous medical bills...

No copays at all whatsoever...

2 general checkups allowed per year no charge to you at all...

The PPO that I had cost a good bit more per year out of pocket just for the premium, and of course that money is lost and forgotten, no chance of banking it!! Thats where the HSA makes much more sense, almost like found money if you don't have the need for a doctor...

Check it out, it may be very worth your while!!!

MURDOC1 wrote:The PPO that I had cost a good bit more per year out of pocket just for the premium

That's my situation, too. Just my wife and I on the high-deductible medical policy now that the kids are grown, and the total premium is only $700 for the whole year. But my premium for "regular" insurance would be almost $7,000 per year, my cost. I take about half the difference and put it in an HSA. My annual exposure is a deductible of $3900 per person, but effectively it is free since I have saved it in the HSA. So unless both my wife and I have a "bad" year simultaneously, the high deductible insurance with the HSA saves money, and lots of it.

rberq wrote:

MURDOC1 wrote:The PPO that I had cost a good bit more per year out of pocket just for the premium

That's my situation, too. Just my wife and I on the high-deductible medical policy now that the kids are grown, and the total premium is only $700 for the whole year. But my premium for "regular" insurance would be almost $7,000 per year, my cost. I take about half the difference and put it in an HSA. My annual exposure is a deductible of $3900 per person, but effectively it is free since I have saved it in the HSA. So unless both my wife and I have a "bad" year simultaneously, the high deductible insurance with the HSA saves money, and lots of it.

does that $7,000 a year include all of the copays you had to do or were they xtra ??

RAYJAY wrote:does that $7,000 a year include all of the copays you had to do or were they xtra ??

Co-pays were extra. So in effect the $7K was really MORE than $7K.

rberq wrote:

RAYJAY wrote:does that $7,000 a year include all of the copays you had to do or were they xtra ??

Co-pays were extra. So in effect the $7K was really MORE than $7K.

Agreed on the "MORE" part 100%... That is why I opted for the HSA... I did think long and hard about making the switch and once I envolved a calculator there was simply NO question which way to go...

Also, the PPO plan that I had not only had a huge/high priced premium as well as co-pays there was also a $500.00 per year deductable on top of all of the expense!!! Not to mention the in-network care was not always covered 100% and out-of-network was only like 30% coverage!!! Rediculous... Now with the HSA I am covered 100% for in-network and something like 80-90% out-of-network depending on services... Awesome!!! Plus if I don't see a doctor I keep that money rolling over year to year... I figure I have another 30 years of working till retirement and if an HSA is still around all that time I could have some serious coin saved up for medical expenses in my golden years... More money left in the personal accounts for playing with coal stoves and the like...

rberq wrote:

RAYJAY wrote:does that $7,000 a year include all of the copays you had to do or were they xtra ??

Co-pays were extra. So in effect the $7K was really MORE than $7K.

so even worst case you have controlled cost of max of 8,500 for the year . thats how it works for us after that every else is taken care of