How to Set Up a Flexible Spending Account

Setting up a flexible spending account (FSA) with your employer is relatively straightforward, but to get the maximum benefit from your FSA, you'll need to do a bit of financial forecasting. There are two basic types of flexible spending accounts. A health care spending account is used for medical and health care expenses not reimbursed by your insurance company, such as co-payments, over-the-counter medications and first-aid supplies. Dependent care accounts are used to pay child care expenses. In both account types, pretax dollars are deducted from your paycheck to fund the account.

Ask your employer which type of flexible spending accounts are offered and if there are dollar amount limits to each. Most employers will allow you to open more than one type of account as long as they are available, but you will not be able to use funds from one account to pay expenses in another.

Gather receipts or other payment information for child care expenses and medical, health care and pharmacy co-payments for last year. If you don't have access to these, estimate your likely payments in the following year.

Add up all expenditures for each account type to determine the total amount spent. If there are any changes in your situation since last year, make necessary adjustments and add or subtract them from your total. The goal is to get an accurate picture of what you will spend this year on eligible expenses.

Obtain and fill out the flexible spending account forms from your human resources office or benefits manager. You will begin to see payroll deductions as soon as it is administratively possible. Flexible spending accounts are initially funded by a third-party insurance carrier or FSA benefit provider. Your payroll deductions serve to reimburse the carrier.


  • Once you start your account, it is very difficult to stop or change it unless a qualifying event takes place or annual enrollment comes around. These events include births, deaths, marriage, divorce and changes in employment. If you experience any of these events, take advantage of the opportunity to re-evaluate your needs.


  • Flexible sending accounts carry a "use it or lose it" stipulation. If you do not use funds in your account at the end of the plan year, they are forfeited. Plan your spending carefully to avoid losing your hard-earned money.