Which statement about a Flexible Spending Account (FSA) is true?

• A. Flexible Spending Account, employer-sponsored, uses pre-tax dollars to pay for qualified medical expenses, and funds may be forfeited if unused.
• B. Flexible Spending Account is a government program that guarantees medical coverage for all employees.
• C. Flexible Spending Account is funded entirely by post-tax dollars and never forfeits funds.
• D. Flexible Spending Account offers investment options similar to retirement plans.

Answer: (A)

Flexible Spending Accounts are employer-sponsored plans funded with pre-tax dollars through payroll deductions, and you can use the dollars to pay for qualified medical expenses. The tax benefit comes from contributions being made before taxes, which lowers your taxable income. However, unused funds are typically forfeited at the end of the plan year or deadline (the use-it-or-lose-it rule), though some plans may allow a small carryover or grace period. FSAs are not government programs, they aren’t funded with post-tax dollars, and they generally don’t offer investment options like retirement accounts.