Flex spending accounts have a use-it-or-lose-it rule

Money in a flexible spending account (FSA) does not roll over to the next year. If you don't spend what you set aside, you forfeit it—the employer keeps the balance. This is the defining feature of FSAs and the reason they work differently from health savings accounts (HSAs) or traditional retirement savings.

The rule exists because of how FSAs are taxed. You contribute pre-tax dollars, which means the money never gets taxed as income. In exchange, the IRS requires that you actually spend the money on may have access to medical expenses within the plan year. If you could carry unused funds forward indefinitely, the tax advantage would become a tax shelter, which the IRS does not allow.

The plan year typically runs January through December, though some employers use different fiscal years. Your employer sets the exact dates and tells you when the plan year ends.

Key Takeaways

  • FSA funds left unspent at the end of the plan year are forfeited to your employer; there is no carryover to the next year.
  • A small grace period—up to 2.5 months into the next year—may be available if your employer offers it, but this is optional and not all plans include it.
  • You can carry over up to $640 (as of 2024) to a runout period only if your employer has adopted the carryover option, which is separate from the grace period.
  • HSAs, which are different from FSAs, do roll over indefinitely and function more like retirement accounts.
  • You can change your FSA contribution amount during open enrollment or if you have a may have access to life event like a birth or job change.

The grace period and carryover option explained

Some employers offer a grace period that extends the spending window into the next plan year. If your employer includes this, you typically have an extra 2.5 months (sometimes up to 3 months) after the plan year ends to spend down your remaining balance. This is not automatic—your employer must elect to offer it, and you should check your plan documents to see if yours does.

Separately, some employers offer a carryover option that lets you roll a limited amount forward. As of 2024, you can carry over up to $640 of unused FSA funds into the next plan year. This is also optional and requires your employer to have adopted the carryover provision. You cannot have both a grace period and a carryover in the same plan year—your employer chooses one or the other.

Even with a carryover, any amount above $640 is still forfeited. If you set aside $3,000 and spend $2,200, you can carry forward $640 and lose $160. The carryover limit increases slightly each year to keep pace with inflation.

How to avoid losing money in your FSA

The best strategy is to estimate conservatively. Look at your actual medical spending from the past two or three years—dental visits, prescriptions, copays, glasses, hearing aids—and set aside only what you are reasonably confident you will spend. Many people overestimate and end up forfeiting money.

If you have already contributed and the plan year is underway, you can still use the funds strategically. FSAs cover a wide range of expenses: over-the-counter medications (with a prescription from your doctor), first aid supplies, sunscreen, dental work, vision care, hearing aids, and many other items. You can also use FSA funds to pay for dependent care—childcare or adult day care—if your employer offers a dependent care FSA alongside the medical FSA.

Keep receipts and invoices. You will need them to prove expenses are may have access to when you submit reimbursement requests. Some FSAs issue a debit card that works at pharmacies and medical providers, but you still need documentation for your records.

FSAs versus HSAs: the key difference

A health savings account (HSA) works completely differently. HSA funds roll over year to year indefinitely and grow like a retirement account. You can invest the balance, and it stays yours even if you change jobs or health plans. The tradeoff is that HSAs require you to be enrolled in a high-deductible health plan, while FSAs work with any health insurance.

If you have access to both an HSA and an FSA, the HSA is usually the better choice because of the rollover feature. You can contribute to an HSA and let it accumulate, then use it for medical expenses in retirement. An FSA is better suited to people who have predictable, near-term medical expenses they know they will incur within the plan year.

Some employers offer only one or the other. Check your benefits materials to see what your employer provides.

What happens if you change jobs mid-year

If you leave your job before the plan year ends, you lose access to your FSA when ready. Any remaining balance is forfeited, even if your new employer also offers an FSA. You cannot transfer the funds to a new FSA.

This is one reason to be cautious about how much you contribute early in the year, especially if your job situation is uncertain. If you know you are leaving, you can request a final reimbursement for any expenses you have already incurred but not yet submitted.

If your employer offers COBRA continuation coverage, you may be able to continue your FSA for a limited time, but you will have to pay the full premium yourself (both the employee and employer portions). Most people do not continue FSA coverage through COBRA because the cost is high and the benefit is temporary.

Submitting expenses and getting reimbursed

You submit FSA expenses through your plan's claims process, which varies by employer. Some plans use an online portal where you upload receipts. Others require paper forms mailed to the plan administrator. A few issue a debit card that automatically deducts from your FSA balance at participating providers, though you may still need to submit documentation later.

The timeline for reimbursement is usually 5 to 10 business days after the plan receives your claim. Keep copies of everything you submit. If the plan denies a claim, you have the right to appeal, and the appeal process is outlined in your plan documents.

Do not wait until December to submit old expenses. Many plans have a important date—often 60 to 90 days after the plan year ends—for submitting claims. Check your plan documents for the exact important date.

Frequently Asked Questions

Can I get my FSA money back if I don't spend it?

No. Unspent FSA funds are forfeited to your employer at the end of the plan year. This is the core rule of FSAs. The only exception is if your employer offers a carryover option (up to $640) or a grace period (usually 2.5 months into the next year), but these are optional and not all plans include them.

What counts as a may have access to FSA expense?

may have access to expenses include copays, deductibles, prescriptions, dental work, vision care, hearing aids, and many over-the-counter items like pain relievers and allergy medicine (with a prescription). Cosmetic procedures, gym memberships, and general wellness products do not count. Your plan documents list the full range of covered expenses.

Can I change my FSA contribution if I realize I set aside too much?

You can change your contribution amount during open enrollment (usually in the fall for the next plan year) or if you have a may have access to life event—marriage, divorce, birth of a child, loss of other health coverage, or significant change in medical needs. You cannot change mid-year without a may have access to event.

What is the difference between a dependent care FSA and a medical FSA?

A dependent care FSA covers childcare or adult day care expenses, while a medical FSA covers health and medical costs. Some employers offer both as separate accounts. The use-it-or-lose-it rule applies to both, though the annual contribution limits are different.

If I have an HSA, can I also have an FSA?

You can have an HSA and a limited-purpose FSA at the same time, but not a general medical FSA. A limited-purpose FSA covers only dental and vision expenses, which allows you to use both accounts without violating IRS rules. Check with your employer to see if they offer this combination.