Why Save to a Dependent Care Flexible Spend Account (DCFSA)?
Blog post
03/07/24Among the list of savings accounts offered by an employer (FSA, HSA, 401(k), etc.), the Dependent Care Flexible Spending Account (DCFSA) can be a powerful tool for parents. It is a tax-advantaged account designed to pay for childcare expenses.
The DCFSA allows you to save up to $5,000 pre-tax money in 2024. You can then use these funds to cover eligible childcare expenses, such as daycare, after-school programs, and preschool. You can continue to use this account until your kids reach age 13.
Differences between a DCFSA, HSA, and FSA
Saving to a DCFSA does not disqualify you from contributing to your Health Savings Account or Flexible Savings Accounts, as they all have different benefits.
| DCFSA | FSA | HSA | |
| What? | A Dependent Care Flexible Savings Account sets aside pre-tax dollars for eligible dependent care expenses. | A Flexible Savings Account sets aside pre-tax dollars to pay for qualified medical expenses. | A Health Savings Account sets aside pre-tax dollars for individuals with a high-deductible healthcare plan to pay for qualified medical expenses. |
| 2024 Contribution Limit | $5,000 | $3,200 | $8,300/Family $4,150/individual |
| Distribution | “Use it or lose it.” (any unused funds in the DCFSA at the end of the plan year may be forfeited) |
“Use it or lose it.” (any unused funds in the FSA at the end of the plan year may be forfeited) |
The account is portable and does not have a use-it-or-lose-it feature. When an HSA is invested, it will continue to grow tax-free. It will then be distributed tax-free when used for medical expenses. |
The downsides
- The account has the “use-it-or-lose-it” mandate, meaning any unused funds in the DCFSA at the plan year’s end may be forfeited.
- You can only fund a DCFSA if your employer offers it.
- The expenses must occur while the parents are at work.
DCFSA VS. DCTC
Contributing to the DCFSA does not disqualify you from the Dependent Care Tax Credit (DCTC). These two benefits can be used together to maximize your tax benefits for childcare expenses. You will need to make sure that you are not double dipping by claiming the same expenses for both the DCTC and DCFSA.
Conclusion
Most families spend over $5,000 on childcare expenses per year, so why not contribute, get the tax benefit, and then use the funds on the expenses you are already paying for?
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