Flexible Spending Accounts (FSAs)

Companies often offer two types of spending accounts. The most popular is a medical FSA, where a worker sets aside money to pay items such as health insurance copays, uninsured treatments (for example, vision care) or even over-the-counter drug purchases. (Sorry, purely cosmetic surgery doesn't count here.) Some companies also offer their employees a separate dependent care account to cover the costs of hiring someone to look after a child or other person who needs supervision while the employee is at work.

The money usually is taken out through regular, equal payroll deductions. And in both cases, the FSA deductions come out of a worker's paycheck on a pretax basis. Because taxes aren't calculated on the contributions, the actual bite to your paycheck will be less than the amount you set aside. For example, a $100 per-pay-period contribution might reduce your paycheck by only $75 because a smaller amount of taxes is withheld.

As helpful as these accounts are, they have one big drawback: the use-it-or-lose-it requirement that costs workers millions of dollars each year. Previously, workers had to spend FSA contributions by the end of the company's benefit year, which in most cases is December 31. Any leftover account amounts were forfeited. Studies by benefits specialists regularly show that employees typically forfeit more than $100 each year in flexible medical accounts.