Consider Some of These Strategies to Use Pre-Tax Dollars to Pay for Orthodontic Expenses
Orthodontic treatment fees are a considerable medical expense compared to some of the other usual family costs for annual/routine visits such as dental checkups or eye examinations. However, with proper planning regarding financial issues and coordination of the treatment timing, there can be a significant benefit to pay for the treatment cost with pre-tax dollars.
The Flexible Spending Account (FSA) is essentially a type of trust account that is administered by a bank or other financial institution. You put the money in on a tax free basis (usually through salary deferrals), it builds up tax free (you can invest it), and it comes out tax free to cover out-of-pocket healthcare expenses. To qualify for these accounts the taxpayer must be covered by a health insurance plan that has a high-deductible co-pay that exceeds a minimum upwards of $1,350 for an individual plan and $2,700 for a family plan. There are also limitations on the maximum amount of annual contributions that that can be put into such a plan. For the FSA type of plan the 2019 limitation is $3,500 for an individual and $7,000 for a family.
In practice I have seen families use several strategies to maximize the benefits offered by these plans. For instance, if both spouses are employed, they can each contribute to their own individual FSA accounts, thus effectively doubling the annual maximum contribution from $3,500 to $7,000. Another way to maximize the pre-tax benefit is to time the beginning of the orthodontic treatment near the end of the year and ask the orthodontist if he will accept a partial bulk payment for the current year and then accept a second bulk payment at the beginning of the subsequent year. These strategies can also double the contribution as in the previous example. Also, since the initiation of orthodontic therapy is somewhat variable, any unused funds remaining in the FSA account that could be potentially lost if not used by the end of the current year could be reallocated towards the down payment for treatment.
Each family’s situation is unique. I recommend you consult an accountant and/or tax advisor before implementing any FSA taxexempt strategies.