It is a daunting time when the annual booklet for benefits choices, containing options for your health insurance account like a dependent care savings account, hits your mailbox.  Many people will just blindly check the same boxes they did the year before because they weren't turned away for treatment the previous year.  The mantra of not fixing what's not broken can make a lot of sense with something as complex as choosing a health insurance account.  However, if you pay for care for a dependent, than you are leaving a lot of money on the table by not looking into this option.

What is a Dependent Care Savings Account?

A dependent care savings account is an option for many health insurance accounts.  The general idea is that you can put away a sum of money, pre-tax,  for third-party care of dependents.  The benefit of doing this is the ability to pay costs you know you're going to have with money that hasn't been taxed.  You can save a good deal of money depending on your tax bracket and salary range.

When Can I Use the Funds?

If your health insurance account has a standard flex spending account, than you are familiar with when you can use the money you choose to put aside.  A standard plan will allow you to use the full amount put aside on the first day of coverage.  If you had put aside $1,000 on a standard flex spending account, than you could use the full $1,000 on the first day.

Unlike the above example, a dependent care savings account will only allow you to spend what you have put into the plan.  Assuming you choose to put in the maximum of $5,000 than you would have access to roughly $417 a month.

What Expenses Can Be Paid?

The most common use of this health insurance account benefit is to pay for care of either a child or an elderly family member.  It is easy to estimate the total amount you would spend on these expenses since both these types of care are a known cost well into the future.  Other flex spending accounts are more of a guessing game because they pay for things such as co-pays and medical emergencies.

This benefit is not without restrictions.  The maximum amount a person or family can contribute to the plan is $5,000 annually.  Furthermore, the funds can only be used for care for people who you claim as a dependent on your taxes.  For example, you could use the funds to pay for a day nurse for your parent that lives with you, but you could not use the funds to pay for a retirement home.

The trickiest line item on this plan regards married couples.  If only one spouse works, than the funds cannot be used even though you were able to sign up for it in the first place.  This is an often misunderstood restriction and being unaware of it can cause costly headaches when tax time rolls around.