During the December benefits enrollment I finally decided against the Flexible Spending account for dependent care. I don't see much benefit in enrolling the Flexible Spending account because:

1) My son will turn 2 years old in the upcoming February and there may be 50%-50% possibility we will send him to a day care sometime during 2004. It will be quite hard to determine how much I should put in the account considering the use-it-or-lose-it nature of the account.

2) Even if we send our son to the day care my wife may prefer not to work. This will make the day care expenses ineligible for the FSA reimbursement.

3) The tax advantage for the account is very limited. Even if I don't participate in FSA, I can always deduct eligible child care expenses in my 2004 tax return. The benefit of FSA is mostly from the fact that any deduction is free from FICA tax. As I will max out social security part of the FICA tax anyway, the only benefit for me is the 1.45% Medicare tax. However, any FSA enrollment will tie my liquidity early in the year and I will risk the chance that the amount will not get used fully.

Therefore, my assessment is in the case of mine, FSA does not present enough risk-adjusted incentive for my financial situation. I therefore didn't enroll that benefit.

(In a separate note, I did enroll in the healthcare part of the FSA.)