Spend and save

On Monday, federal employees can start signing up for Flexible Spending Accounts, a new benefit offered this year by the Office of Personnel Management that's scheduled to roll out in July.

Flexible Spending Accounts allow employees to put as much as $3,000 pre-tax dollars away to pay for out-of-pocket health care costs, such as insurance deductibles and co-payments, prescription drugs and acupuncture. Another $5,000 in pre-tax dollars can be socked away to cover child care and dependent care costs.

Employees who sign up for health care FSAs will have to pay a $4 monthly fee to cover administrative costs. Dependent care FSA enrollees will be assessed 1.5 percent of the amount deposited into the accounts to cover administrative costs. Last week, the House Government Reform Committee approved legislation introduced by Rep. Chris Van Hollen, D-Md., that would require agencies to pay those administrative fees for employees.

"OPM did not request any appropriations to start off this program and agencies don't have appropriations to pay for it, so there are no start up funds for administrative costs," Frank Titus, OPM's assistant director for insurance services programs, said recently. "The only source is the imposition of modest fees associated with employees' elections to participate in the program. Those fees will be more than offset by the tax savings realized from covering child care or medical expenses with pre-tax dollars instead of post-tax dollars."

For example, if John Doe earns $30,000 annually and sets aside $3,000 in a health care FSA, he could take home $886 more a year with the tax savings.

*Federal and state taxes estimated at 23 percent and social security at 7.65 percent.

If Jane Doe, who earns $30,000 annually, puts $5,000 in a dependent care account, she could take home $1,532 more a year with the tax savings.

*Federal and state taxes estimated at 23 percent and social security at 7.65 percent.

** The maximum amount in dependent care accounts cannot exceed the IRS limit of $5,000, including administrative fees.

Though the program starts in mid-year, the contribution amount will not be prorated, according to OPM officials. But when deciding how much to tuck away in the accounts, participants must remember that any money not spent is forfeited, per Internal Revenue Service rules.

Also, some agencies won't be able to start deducting the money from paychecks on July 1. According to Defense Finance and Accounting Service spokesman Roger Still, that agency won't start payroll deductions for Defense employees until September.

"The reason we are doing that is with the size and complexity of our systems, we want to make sure they are fully tested and the accuracy is there for us, and we get it right the first time," Still said.