Lifestyle Spending Account vs Flexible Spending Account
Discover and learn the differences and nuances between Lifestyle Spending Account vs Flexible Spending Account. See how they compare.
Lifestyle Spending Account vs Flexible Spending Account
Every individual has unique needs, so it's natural that employee benefit requirements will vary from person to person and family to family. For instance, recent graduates are likely more interested in student-loan payoff benefits, while new parents are probably searching for competitive dependent-care packages.
By giving your employees the freedom to pick and choose their benefits, you can improve morale and productivity throughout your business. Satisfied employees are hardworking, which can ultimately lead to less turnover in the long run.
Employee spending accounts such as a Lifestyle Spending Account (LSA) and a Flexible Spending Account (FSA) serve different purposes for employees. It's crucial to understand the distinctions between the two types to make informed selections that best fit your employees' individual and often changing needs.
In this article, we will look at the Lifestyle Spending Account vs Flexible Spending Account, evaluate their pros and cons, and provide guidance on how to choose the ideal Lifestyle Spending Account plan for your company.
Advantages of a Lifestyle Spending Account
Offering a personalized and customizable Lifestyle Spending Account (LSA) as a benefit option can be an effective way to attract and retain top talent, increase employee satisfaction, and promote a positive work-life balance. According to a MetLife employee benefits trend study, 72% of workers indicated that a customized benefits package increases their loyalty to their employer. This means that if your competitors come knocking, you won't lose your best employees to a better benefits package.
LSAs are pre-determined funds set up by an employer that can be used for a variety of employee expenses such as child-care, mindfulness and wellness programs, transportation, or even home office equipment. The list of Lifestyle Spending Account eligible expenses is truly endless and can be tailored to meet the specific needs of your workforce.
Some companies refer to LSAs simply as wellness accounts, where many employers offer discounts on gym memberships, vitamin supplements, or alternative therapy. However, LSAs are fully customizable, so the list of offerings can go well beyond gym membership discounts.
By putting the purchasing power back into the hands of the employee, LSAs can help employees feel empowered. They do this by giving them freedom of choice to select benefits that best suit their individualized lifestyles. Employers can set the parameters for how employees can spend LSA funds, from what the offerings entail to how much funding is allocated to how often the funds are available to employees. The more options you offer, the more talent you'll attract as well as increase employee satisfaction.
A few other out-of-the-box lifestyle spending account ideas include:
1. Pet care (adoption fees, training, food, doggie daycare or boarding)
2. Child tutoring and after-school programs
3. Lunch delivery (at work or at home)
4. Music or sporting event tickets
5. Music or language lessons
6. Golf lessons
7. Vacation specials
8. Transportation or gas discounts
9. Online courses or ebooks.
Offering a personalized and customizable LSA for your employees is a smart way to attract the best and brightest. Retaining your current talent will also increase productivity, boost morale, and promote work-life balance. This applies whether employees are in the workplace or working remotely. It's a win-win situation for both the employer and employee and is an effective way to keep your workforce happy and engaged.
Advantages of a Flexible Spending Account
FSAs are funded by the employee, with a predetermined amount coming out of their paycheck every pay period. The employer places the total annual election on the first day the account is opened.
Employees must pay back the employer over the course of the year. For example, if an employee made an annual election of $2,600, $100 would be taken out of the employee's biweekly paycheck to pay back the employer.
The money is deducted pre tax from the employee's paycheck. As long as the money in your FSA is spent on qualifying medical expenses, it is not subject to income tax.
Since money in an FSA isn’t subject to income tax, the IRS limits how much someone can contribute to a single FSA in one year. An essential nuance to remember about an FSA is that the money contributed is forfeited if not spent within the plan year. Most accounts offer a grace period, and some plans allow a specific rollover amount per year.
However, it’s safest to assume employees will lose the money if they don’t spend it. Unspent FSA funds are turned over to the employer once the plan year lapses.
Differences between a Lifestyle Spending Account and Flexible Spending Account
One of the main differences between an LSA and an FSA is the types of expenses that are eligible for reimbursement. A Lifestyle Spending Account can be used for a wide range of expenses, while a Flexible Spending Account is typically limited to specific categories. In contrast to the open freedom of Lifestyle Spending Account, FSAs are typically government regulated and limited specifically to child care or health/medical care.
Another key difference is the reimbursement process. With a Lifestyle Spending Account, you typically have more flexibility when it comes to submitting receipts and receiving reimbursement, while an FSA generally has stricter rules and deadlines.
How to choose the right account
When it comes to choosing between a Lifestyle Spending Account and an FSA, the best option for you will depend on your personal spending habits and financial goals. If you're looking for a way to save and spend for a wide range of expenses, a Lifestyle Spending Account may be the better choice. However, if you're looking to save money specifically for healthcare or childcare expenses, an FSA may be the better option.
It's important to evaluate the plans offered by your employer and understand the limitations and restrictions of each account before making a decision.
In conclusion, Lifestyle Spending Accounts and FSAs are both great options for managing your finances and saving for unexpected expenses. A Lifestyle Spending Account offers more flexibility and higher contribution limits, while an FSA is typically limited to specific expenses and has lower contribution limits.
Ultimately, the best option for you will depend on your personal spending habits and financial goals. Be sure to evaluate the plans offered by your employer and understand the limitations and restrictions of each account before making a decision.
If you want to know more about Lifestyle Spending Account and FSAs, you can find additional resources or <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">schedule a consultation</span> with one of our experts.