Have an HSA and not an FSA? Learn about Health Savings Accounts.
Flexible Spending Accounts (FSA) are usually offered by your employer and used for medical expenses. They allow you to set aside funds for medical expenses before you pay taxes on the money. As long as you use the money for “qualifying” medical expenses you will never pay taxes on it. Each account comes with it’s own set of rules, so you should check with your provider for details on your plan.
With an FSA you make a decision early on about how much you want to contribute to the account. You are expected to use the money within a certain time frame, usually a year. If the money is not used within that time frame, you lose it.
Since you need to make sure you spend all the money in the FSA, you may find it helpful to track the account in YNAB. However, tracking it as an account may not be necessary if:
If you decide to track it, the setup will depend on whether or not:
If your FSA comes with a debit card or a checkbook, you can create an account for it in YNAB.
Step 1: Create an account and choose ‘Checking’ as the account type. This money will become available to budget.
Step 2: Categorize the money to the medical category.
Option 1 - More detailCreate a master category for Medical and then sub categories for the different types of medical costs you want to track. (Co-Pays, Prescription, Glasses, etc) If you’re not sure how much you’ll need for each category, you could:
Option 2 - Less Detail
Keep it simple and have one category for all medical expenses. Budget all money from the FSA there and categorize all withdraws there as well.
TIP: When you add money to an FSA, you can categorize it directly to the medical category instead of categorizing as income. This will bypass the Available to Budget number. Be aware that if you choose to do this, the spending and income will not appear in reports.
Step 3: Record all spending from this account in the account register categorizing to medical.
Step 1: Budget for medical expenses with your money.
Step 2: Record any medical spending in the account where it happened categorizing to medical.
Step 3: When you are issued a reimbursement, categorize it as income and budget it anywhere you want.
TIP: If you are in a situation where cash flow is not a problem (ex. You have a buffer or well funded rainy day categories.) you could handle the reimbursements differently.
Step 1: Create an Off Budget Account for the Flexible Spending Account. Enter the amount you set aside this year for medical expenses as the starting balance.
This account is off budget because you don’t have this money yet. You will be pulling it into the budget when you are reimbursed.
Step 2: Budget for medical expenses with your money.
Step 3: Record any medical spending in the account where it happened categorizing to medical.
Step 4: When you are reimbursed, enter the inflow to checking as a transfer from the FSA account. Categorize this as income.
The transfer will draw down the balance on the FSA so you can easily keep track of what’s left.