How to Create an Investment Policy Statement

Some financial advisors prepare complicated investment policy statements for their clients, complete with appendixes, footnotes, and legal disclaimers. And having an investment policy statement is a wonderful way to help articulate your investment plan and keep it on track. But your IPS needn't be overwrought read more

What Is a Dependent Care FSA?

It’s no secret that child care is expensive. If you’re looking for ways to stretch your budget to cover the cost of child care, a dependent care FSA can help.

What is a dependent care FSA?

A dependent care FSA is a pre-tax benefit account you can use to pay for eligible dependent care services. For example, you can use the funds to pay for preschool, daycare, summer camp, and before or after school programs. You can even use the funds in a dependent care FSA to pay for adult daycare in eligible situations.

To use a dependent care FSA for your child, he or she must be under the age of 13. To use the funds for adult dependent care services, the adult must be a physical or relative that lives in your home and is physically or mentally incapable of caring for themselves.

Benefits of a dependent care FSA

The primary benefit of a dependent care FSA is that any money you set aside in the account is tax-free. That means you reduce the amount of your income that is subject to taxes by contributing pre-tax dollars to your account. Additionally, according to the The Federal Flexible Spending Account Program (FSAFEDS), you can save an average of 30 percent on dependent care services like daycare or after school programs.

One of the main concerns people have about a dependent care FSA is the burden of submitting required documentation and getting reimbursed for the dependent services. Although you have to cover the cost of dependent care services upfront, with a dependent care FSA, it’s easy to get reimbursed for those expenses. You can easily submit and view the status of claims online, look up eligible expenses, and check your account balances. You can even have the money directly deposited into your checking account for fast and hassle-free repayment.

Dependent care FSA contribution limits

Although this type of benefit account may sound like it’s a perfect solution for you, you should also note that some dependent care FSA contribution limits apply. A dependent care FSA lets you set aside up to $5,000 per household to pay child care expenses for kids under age 13 while you and your spouse work or look for work. If you are confident that your child care expenses will meet or exceed dependent care FSA contribution limits, the FSA might be an ideal option for you and your family.

Read a similar article about how to maximize your HSA here at this page.