Personal Finance

What to know before the Dec. 31 deadline for flexible spending accounts

Published

2 days ago

December 16, 2024

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If you have a flexible spending account, you could be facing a use-it-or-lose-it deadline to spend down those funds before the end of the year.

Flexible spending accounts, or FSAs, allow workers to set aside pre-tax money to pay for qualified medical or dependent care expenses.

They are not to be confused with health savings accounts, or HSAs, which are paired with high-deductible health plans and don’t come with spending reimbursement deadlines.

About 70% of FSA account holders have a Dec. 31 deadline to spend their funds, according to FSA Store, an online retailer for FSA-eligible products.

For FSA balance holders who still haven’t fully used their funds for 2024, it’s a great time to check with your plan or human resources department to see whether the Dec. 31 deadline applies to you, said Rachel Rouleau, chief compliance officer at FSA Store.

For some FSAs, a grace period may provide up to two and a half months after the end of the plan year — or until March 15, 2025 — to spend down the funds, Rouleau said. Other plans may instead allow for a carryover of up to $640 from their FSA balance from this year into 2025.

However, it’s important to note that for many other FSA account holders, neither of those options apply, Rouleau said.

If that’s the case, “you really want to make sure you’re tracking to Dec. 31 and spending down your funds appropriately before that date,” Rouleau said.

In 2024, participating employees could put up to $3,200 in a health care FSA account.

Households with FSAs put an average of $2,250 into their accounts annually, according to Numerator, a provider of market research data. That includes $1,820 from personal contributions and $430 from employers.

How to make the most of your FSA funds

Most FSA holders use their accounts for dental and vision care, with 67%; as well as prescription medications, 65%; and medical services and procedures, 64%; according to Numerator.

Many plans offer run-out periods, where FSA account holders can submit for reimbursement up to three months after the end of the plan year, according to Rouleau. In that case, whether you submit for reimbursement now or later, the funds still must be spent by Dec. 31.

Many over-the-counter items, such as acne treatments, pain relievers like Tylenol or allergy medicines like Claritin are FSA eligible, Rouleau said.

'Hidden' benefits of HSAs: Here's what to know

However, not all health care items or services are necessarily eligible for FSA reimbursement.

Nicole DeRosa, a certified public accountant and director of tax at SKC & Co. CPAs in Boonton Township, New Jersey, said she refers her clients to IRS Publication 502 to check to see whether certain expenses qualify.

Medical expenses that qualify for FSA reimbursement generally also qualify for the medical and dental expenses deduction, according to the IRS.

“There’s a lot of expenses that people might not think are eligible that are eligible,” DeRosa said.

For example, for service dogs, their veterinary, food and grooming expenses are covered, she said. Notably, the same does not apply for emotional support animals.

Generally, weight loss programs and cosmetic procedures are not eligible expenses, unless a doctor prescribes them to help treat a medical condition, DeRosa said.

Don’t wait to spend 2025 FSA funds

As the calendar turns to the new year, you don’t have to wait to spend your new FSA balance for 2025.

“You don’t have to wait for each paycheck or to accrue a balance,” DeRosa said. “You can be proactive, and you can start spending it all right away.”

Personal Finance

How to leverage the higher 401(k) plan contribution limit for 2025

Published

18 hours ago

December 17, 2024

Business Finance News

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If you’re eager to save more for retirement, it’s not too early to boost 401(k) plan contributions for 2025, financial experts say.

For 2025, you can defer up to $23,500 into 401(k) plans, up from $23,000 in 2024. For workers age 50 and older, the 401(k) catch-up contribution remains at $7,500 for 2025.

But there’s a “super funding” opportunity for 401(k) catch-up contributions for a subset of savers, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Enacted via Secure 2.0, the 2025 catch-up contribution limit will increase to $11,250 for employees ages 60 to 63, which brings the 401(k) deferral total to $34,750 for these investors.

“Probably no one knows about the extra increase,” and it could take time before the general public is aware of the new opportunity, said Boston-area CFP and enrolled agent Catherine Valega, founder of Green Bee Advisory.

However, boosting contributions later could still be beneficial for savers in this age range, experts say.

Increase 401(k) deferrals for 2025 now

If you plan to adjust 401(k) deferrals for 2025, “now is the time to be doing it,” Valega said.

Typically, it takes a couple of pay periods for 401(k) contribution changes to go into effect, and you could miss some higher contributions in January by waiting, she said.

If you miss bigger deposits early, you can still max out your plan by boosting deferrals later in the year. But higher percentages can “impact cash flow more than people are typically willing to do,” Valega said.

Lucas said he updated next year’s 401(k) contributions for his clients in early December.

“It’s already set for next year,” he said. “We’re on pace, starting with the first payroll.”

Financial advisors take on crypto: Here's what to know

Of course, many workers can’t afford to max out their 401(k) plan every year.

Roughly 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly 5 million participants.

Personal Finance

Student loan forgiveness chances lost to those who refinance: CFPB

Published

19 hours ago

December 17, 2024

Business Finance News

Ivan Pantic | E+ | Getty Images

With the Federal Reserve’s recent moves to lower interest rates — and further cuts on the horizon — some federal student loan borrowers are wondering if now is a good time to refinance.

“We are already seeing more borrowers tempted to refinance their federal loans,” said Betsy Mayotte, president of The Institute of Student Loan Advisors.

Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.

But the Consumer Financial Protection Bureau has new warnings about refinancing student debt.

In a report published Monday, the CFPB said that private lenders use “deceptive” practices in their marketing and disclosure materials, misleading student borrowers about a key pitfall of refinancing: Those who do so lose access to federal student loan forgiveness options.

“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” said CFPB Director Rohit Chopra. “Student loan companies should not profit by violating the law.”

Federal forgiveness chances dashed with refinancing

Some private lenders give the wrong impression “that refinancing federal loans might not result in forfeiting access to federal forgiveness programs, when, in fact, it was a certainty,” the CFPB report says.

The federal government offers a range of student debt forgiveness programs, including Public Service Loan Forgiveness and Teacher Loan Forgiveness.

PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments. Under TLF, those who teach full-time for five consecutive academic years in a low-income school or educational service agency can be eligible for loan forgiveness of up to $17,500. These options are not available to private student loan borrowers.

Borrowers refinancing would also not be eligible for one-off forgiveness efforts like President Joe Biden’s Plan B.

Private student loan borrowers who are struggling to pay their bills don’t have a right to an income-driven repayment plan, either.

IDR plans allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period.

Borrowers who refinance their student loans lose access to these federal relief options, the CFPB said.

And this has cost borrowers.

“The lenders profited from borrowers paying the full amount of their loans, when the borrowers otherwise potentially could have had some or all of those loans forgiven,” the bureau wrote in its report.

Lenders do inform borrowers of what benefits they may give up by making moves like refinancing, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for student loan servicers.

Buchanan said the government’s changing promises around student loan forgiveness has led to a lack of clarity. (Republican-led legal challenges have stymied the Biden administration’s efforts to deliver wide-scale student loan forgiveness to borrowers.)

“That volatility and confusion is something the Bureau needs to take up with the Department of Education,” Buchanan said.

But the federal government’s long-standing student loan forgiveness programs and other relief measures are reasons alone to think twice before refinancing, Mayotte said.

“We almost always very strongly recommend against it,” she said.

Personal Finance

Advisors remain reluctant to recommend crypto, even as prices soar

Published

20 hours ago

December 17, 2024

Business Finance News

Digital assets have rallied since the November U.S. election — with bitcoin notching a new high above $107,000 on Monday — and continue to gain ground as President-elect Donald Trump details his pro-cryptocurrency policy plans.

Still, many financial advisors remain wary.

“As traditional long-term planners, we currently do not incorporate crypto in our portfolio allocations,” said certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida. She is also a certified public accountant. “We always advise our clients to put in crypto what you’re not necessarily needing for retirement, what you’re comfortable losing.”

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To be sure, regulatory uncertainty remains a clear area of concern for financial advisors when it comes to recommending crypto investments to clients.

In April, when crypto prices were lower, an annual survey of 2,000 financial advisors by Cerulli Associates found that 59% don’t currently use cryptocurrencies or plan to in the future. Another 26% said they don’t use it now but expect to in the future.

Meanwhile, about 12% of advisors said they use cryptocurrencies based on clients’ requests, according to the Cerulli report, and less than 3% of advisors said they use crypto based on their own recommendations.

ETFs an ‘easy solution’ to add crypto

If investors are interested in crypto, CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina, advises many clients to use exchange-traded funds.

“It’s truly depending upon what the client is looking to achieve and how easy they feel in navigating this market,” he said. “If they’re looking for an easy solution. ETFs might be the best way to go.”

Spot bitcoin ETFs, first available in January, now have more than $100 billion in assets under management, which is about 1% of the overall ETF market.

“Bitcoin ETFs have become the vehicle of choice for bitcoin holders,” Brian Hartigan, global head of ETFs at Invesco, said during CNBC’s “Halftime Report” on Dec. 9.

Lawrence recommends clients interested in crypto limit the allocation to no more than 1% to 5% of their overall portfolio.

Most financial advisors agree that whether to have crypto investments in your portfolio depends on your risk tolerance, financial goals and time horizon.