Flexible Spending Account (FSA) Funds: Rollover Rules and Options

Flexible Spending Account (FSA) funds typically do not rollover from year to year, but there have been recent changes that allow for some flexibility. It's important to understand the rollover rules and options for FSAs, which are tax-advantaged accounts used to cover qualified medical expenses and dependent care expenses.

1. Use It or Lose It Rule: Historically, FSAs have been subject to the "use it or lose it" rule. This means that any funds remaining in your FSA at the end of the plan year would be forfeited, and you would not be able to carry them over to the next year.

2. Grace Period: Some FSA plans offer a grace period, typically up to 2.5 months after the end of the plan year. During this grace period, you can incur eligible expenses and use any remaining funds from the previous year.

3. Carryover Option: In recent years, the IRS introduced a provision that allows employers to offer a carryover option. This means that an FSA plan can permit participants to carry over up to $550 (the specific amount may vary) of unused funds from one plan year to the next. However, not all employers choose to implement this option, and the amount that can be carried over may vary.

4. Spend Down: If you have an FSA with a use-it-or-lose-it rule and you have a remaining balance at the end of the plan year, you can spend down the funds by purchasing eligible medical or dependent care expenses. You might want to consider expenses like prescription eyeglasses, contact lenses, medical equipment, or dependent care services to avoid losing the funds.

5. FSA Account Type: There are two main types of FSAs – the Healthcare FSA and the Dependent Care FSA. The rules for rollover and grace periods can differ between these account types, so it's important to understand which type of FSA you have and the specific rules that apply.

6. Communication with Your Employer: It's crucial to be in communication with your employer or the FSA plan administrator to understand the specific rules and options for your FSA. Employers have some flexibility in designing their FSA plans, so it's not a one-size-fits-all situation.

7. IRS Guidelines: Be aware that IRS guidelines regarding FSAs can change, so it's a good idea to stay informed about any updates or changes in regulations that may affect your FSA.

Remember that FSAs are intended to help you cover qualified medical and dependent care expenses, and understanding the rules for rollover and options available can help you maximize the benefits of these accounts. If your employer offers an FSA, consider participating and making the most of the tax-advantaged benefits it provides.