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What is the difference between a flexible benefits plan and a flexible spending account?

A flexible benefits plan, also known as a cafeteria plan, is a program that lets employees choose among a variety of benefits [such as health, life, and disability insurance; extra vacation days; legal services; or increased employer contributions to a 401(k)]. Generally, employees each get a fixed number of credits to spend on benefits and they pick and choose from the different options, each of which is assigned a certain number of credits.

A flexible spending account for health care is a special tax-favored account that an employer can offer. As an employee, you can specify a fixed amount of money to be taken from your paycheck throughout the year to pay for medical expenses that are not covered by your insurance. Its biggest advantage is that you put money in the account on a before-tax basis, which just means that you will not have to pay income tax on that portion of your income. It is used for things like eyeglasses, allergy shots, prescription drugs, etc. There is one caveat with a flexible spending account--if you don't use it up by the end of the year, you lose it. Estimate conservatively when deciding how much to put in it.



Brenda Procter, M.S.,  Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri-Columbia







If you'd like to learn more about this and other personal finance topics, the University of Missouri offers 'Personal & Family Finance,' a correspondence course, through the Center for Distance and Independent Study (800-609-3727). Information about this course is available at





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Last update: Sunday, July 20, 2008




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