Flexible Spending Account (FSA)

Definition

A flexible spending account is an employer-sponsored benefit that lets you set aside pre-tax dollars to pay for eligible medical or dependent care expenses. Contributions reduce your taxable income, saving you money on federal income, Social Security, and Medicare taxes. The main drawback is the use-it-or-lose-it rule: most unused funds expire at the end of the plan year, though some employers offer a grace period or limited rollover.