This year you can put an extra $50 in your health care flexible spending account bringing the total to $2,550. Meanwhile the contribution limit for dependent care remains fixed at $5,000 where it’s been stuck since 1986 when Congress originally set it.
While both accounts are employer-sponsored, the flex account for health care is adjusted each year for inflation. The account to help employees pay for day care is not. If it was, the contribution limit should now be at a robust $10,859.08.
For a long time, the government didn’t even cap flexible spending accounts for health care—though employers usually limited annual savings to $5,000—but the Affordable Care Act capped it at $2,500 while allowing for future inflation adjustments. Next year will be the first time it’s risen since the cap was put in place.
Still, these caps shouldn’t stop you from contributing, because the savings can be significant. Here’s what you need to know about the various tax-advantaged accounts and their new limits for 2015.
* Health care flexible spending account – $2,550 cap – Your employer sets aside pretax money from your paycheck and puts it into a separate account for health care expenses.
* Dependent care flexible spending account — $5,000 cap – Works the same as the health care account, except the money is set aside for child-care expenses for children 12 and younger or, in some cases, for a disabled spouse or aging parent who lives with you. If your employer doesn’t offer this option, you can use the dependent care tax credit.
This is part one of a two part article. Watch for Part 2 on Commuter Expense, IRA, 401(k) and 403(b) accounts.