The Easy Money People Ignore

In coming weeks, you'll probably get that annual note from human resources. Near the bottom you'll be asked to sign up for a flexible-spending account. And you'll probably ignore it. You won't be the only one. FSAs let people set aside pretax money from their pay to cover health-care costs that insurance doesn't. (Similar accounts exist for commuting expenses and child or elder care.) Savvy users can rack up annual savings in the four figures -- but roughly 80% of eligible people blow it off. The Employers Council on Flexible Compensation figures that only about 20 million people are signed up.

Everyone else generally makes one of four excuses for not signing up -- all of which wither under scrutiny:

IGNORANCE of the options. Many people think FSAs just cover co-pays and deductibles, but the list is much longer. Vasectomies are covered. So are dancing lessons (as long as they are rehabilitative). For a list, go to fsafeds.com and click "Eligible Expenses Juke Box." Cross-check it with your company, as it has some discretion. Over-the-counter drugs are eligible now, too. Go to drugstore.com/fsa to see the possibilities for government-subsidized shopping sprees.

FEAR of losing the money. You have to spend your FSA money within either 12 months or 141/2 months, depending on your company's rules. If you don't, you'll lose that money you socked away. Many employees decline to take the risk.

Most people don't lose anything, though. If the deadline approaches and there's money left, it's easy enough to buy new glasses (including prescription sunglasses) or hit the drugstore. Those who do lose money generally don't lose nearly enough to wipe out their tax savings. How much should you save? Add up your spending from the jukebox this year, think about who's scheduled for, say, braces in the house, then set aside a bit more for cushion.

RESENTMENT of the system. With FSAs, you're paying twice. First, the money comes out of your check and is put into the account. Then, you have to pay for eligible items out-of-pocket and wait to get the money back. To avoid the second part, put eligible health-care expenses on a credit card. Then, use the time between the charge and the bill's due date to file for reimbursement. Time it right, and the money will arrive before the bill's due. Or play the system this way: Plan big expenses, like Lasik eye surgery, for January. Most FSA plans will reimburse you in full, even though you haven't set aside most of that year's funds yet. It's essentially an interest-free loan.

THE HASSLE of all that FSA paperwork. Thankfully, some companies hand out debit cards for FSA spending. Each year, more of these charges are approved automatically, so you don't need to send in receipts.

If you don't need your reimbursements right away, just ask for them once per year. Store receipts in an envelope as you collect them, then fill out just one (long) form at year-end and send it in. This exercise will take an hour or so. Still feel burdened by it? Let's say it yields $1,000 in tax savings. If you earn more than $1,000 an hour (that would be just over $2 million per year), then perhaps it isn't worth your time.

Otherwise, you could be letting easy money slip through your fingers.

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