Carryovers and Grace Periods: Avoid Losing Unused FSA Funds
A flexible spending account (FSA) allows you to use tax-free money for eligible medical or dependent care expenses. While FSAs must adhere to the “use-or-lose” rule, employers may offer one of two options to help you avoid having to forfeit your unused funds:
- A grace period of up to 2.5 months (ex. January 1 to March 15) to spend the remaining funds
- Carrying over a maximum of $610 of unused funds at the end of the year (as of 2023) The 2024 carryover maximum is $640
However, employers cannot offer both, and some plans may not allow either option. This is why it's important to plan carefully and not put more money in your FSA than you think you'll spend within a year.
Types of FSAs
Let’s briefly review the three different types of FSAs and how they can be used:
- Healthcare Flexible Spending Accounts (HCFSAs) allow you to use pre-tax dollars to pay for eligible medical expenses, including dental and vision expenses.
- Limited Purpose Flexible Spending Accounts (LPFSAs) are similar to HCFSAs, but they can only be used for eligible dental and vision expenses. LPFSAs can be paired with a health savings account (HSA) to help cover additional medical costs.
- Dependent Care Accounts (DCAs) are used to pay for eligible dependent care expenses. This includes care for children under 13, as well as elderly parents. It may also help pay for medical expenses for dependents with disabilities. Carryovers are not allowed for DCAs, and some plan providers may not offer grace periods.
Things to consider before the end of the plan year
Are you considering taking advantage of the grace period or carrying over your unused funds to the next year? Here are some helpful tips and considerations you should keep in mind.
- Set a reminder: You typically have until the end of the year (or, with the grace period, up to an additional two and a half months after the plan year has ended) to spend any unused FSA money and submit receipts. But you don’t want to wait until the last minute — set a calendar reminder a couple of months or weeks before the deadline to help you stay on top of your claims.
- FSA carryovers do not impact next year's contribution limits: This means even if you’re carrying over a portion of last year’s funds, you can still contribute the maximum amount for the next plan year.
- Your FSA money can’t move with you: Unlike an HSA, you cannot take your FSA funds with you if you leave your job. However, your employer may offer a run-off period, allowing you to submit reimbursement claims for expenses incurred while still an active employee.
Still have money in your FSA?
Don’t get stuck with a large balance at the end of the plan year. Most employers’ plans will offer a run-off period of three months which allows you to submit claims incurred during the plan year. While FSA funds are usually spent on things like copayments, coinsurance and dependent care, you can also use them to purchase other eligible items, like band-aids and vitamins.
Look over the eligibility list for items you can purchase with your FSA funds. You can also visit FSAstore.com to shop for thousands of FSA-eligible products. But keep in mind, stockpiling is not permitted.
If you have questions or are unsure whether your employer offers a grace period or carryover for unused FSA funds, contact your HR department for more information.
This blog is up to date as of November 2023 and has not been updated for changes in the law, administration or current events.
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