It’s that time of year again: the "use it or lose it" countdown for the millions of people who have flexible spending accounts.
Beware: any funds left in that account on December 31 will disappear faster than booze at an office holiday party…
That’s because flexible spending accounts — which allow taxpayers to use pretax dollars for out-of-pocket medical expenses — have a "use it or lose it" provision that requires them to be used up by the end of the year.
It’s the law.
So, if the lady in front of you is buying a palette of Tylenol, it may not be because she’s trying to recover from that same holiday party I mentioned. She’s probably just trying to use up her flexible account dollars.
The Important Rules Behind Flexible Spending Accounts
While flexible spending account holders can spend the funds on medical expenses not covered by insurance, like laser eye surgery, dental expenses, psychiatric care, vaccinations, immunizations and dermatological services, etc., they can also spend them on certain over-the-counter-medications, thanks to a September 2003 announcement from the Treasury Department and the IRS:
Today, the Treasury Department and the IRS announced over-the-counter drugs can be paid for with pre-tax dollars through health care flexible spending accounts. Treasury and IRS issued guidance clarifying that reimbursements for nonprescription drugs by an employer health plan are excluded from income. Thus, reimbursements by health flexible spending arrangements (FSAs) and other employer health plans for the cost of over-the-counter drugs available without prescription are not subject to tax if properly substantiated by the employee.
FSA dollars can also be used for birth control, flu shots, programs for quitting smoking, and hearing exams, just to name a few. But you should double-check with your employer regarding what your FSA dollars cover.
If you don’t use the money in your account by December 31, you lose it. Be sure to verify this with your employer, as well, as some have extended this date to March 15.
Flexible Spending Account Benefits Drugstore.com
According to Forbes.com, Drugstore.com "called upon some of the largest U.S. benefits administrators to create a list of items that are eligible for reimbursement under most plans." As it says on its site, "Drugstore.com offers some 2,000 OTC items deemed likely to be eligible at its ‘FSA Store.’ Shoppers can print a detailed receipt to submit to their FSA administrator for reimbursement, and all purchases made throughout the year on the site can be consolidated in a single FSA receipt."As a result, the stock caught some attention:
From December 2001 to January 2002, DSCM ran from a low of about 90 cents to about $4.50.
From December 2002 to January 2003, it ran from about $1.75 to about $2.75.
From December 2003 to January 2004, it ran from about $5.50 to about $8.
From December 2004 to January 2005, it ran from about $3 to about $3.75.
From December 2005 to January 2006, it ran from about $2.50 to about $3.30.
From December 2006 to January 2007, it ran from about $3.25 to about $3.90.
In December 2007, it ran from about $3.10 to $3.50.
In December 2008, it ran from about 80 cents to about $1.50.
And if you’ve followed this yearly year-end advice, you’re already up 27% — Drugstore.com has run from $2.75 to $3.50 from November’s end until today, as I write this.
Do this: Every November, go long shares of Drugstore.com… and hold until the end of December. Then, turn around and go short as the stock historically pulls back.
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Ian L. Cooper
Wealth Daily
