Flexible spending accounts do not roll over—you lose unspent money at the end of the plan year

A flexible spending account (FSA) is a tax-advantaged account where you set aside pre-tax dollars to pay for may have access to medical or dependent care expenses. Unlike a health savings account (HSA), which lets you carry unused money forward indefinitely, an FSA operates under a "use-it-or-lose-it" rule. Any balance remaining in your account on December 31 (or whenever your plan year ends) is forfeited—you cannot roll it over to the next year, transfer it to an IRA, or get it back as a refund.

The only exception is a carryover provision that some employers offer, which allows you to roll up to $640 (as of 2024) into the next plan year. Even with this option, the amount is limited, and not all employers provide it. If your employer does not offer a carryover, any unspent FSA money is gone.

Key Takeaways

  • FSA money you do not spend by the end of your plan year is lost permanently—there is no rollover to the next year unless your employer offers a carryover provision.
  • A carryover allows you to move up to $640 (2024 limit) into the following year, but your employer must include this option in the plan for you to use it.
  • You cannot transfer FSA funds to an IRA, HSA, or any other retirement account.
  • The best strategy is to estimate your medical and dependent care expenses carefully each year and contribute only what you expect to spend.

How the use-it-or-lose-it rule works

When you enroll in an FSA, you elect a dollar amount to contribute for the plan year. That money is deducted from your paycheck in pre-tax installments and held in your account. You then submit claims or use a debit card to withdraw funds for covered expenses. At the end of the plan year, whatever balance remains is forfeited by law—it goes back to your employer or the plan administrator, not to you.

This rule exists because FSAs are tax-advantaged accounts. The IRS allows you to avoid paying income and payroll taxes on FSA contributions, but in exchange, the account is designed for current-year spending only. The forfeiture rule prevents people from accumulating large tax-free balances over time.

The plan year typically runs January through December, but some employers use different plan years. Check your benefits documents or ask your HR department when your FSA plan year ends.

Carryover provisions: what you need to know

Some employers offer a carryover election, which lets you carry forward up to $640 of unused FSA funds into the next plan year (the 2024 limit; this amount may change annually). If your employer offers this option, you do not have to do anything—the carryover happens automatically. Any amount over $640 is still forfeited.

Not all employers include a carryover provision in their FSA plan. To find out whether yours does, check your Summary of Benefits and Coverage (SBC) document, your plan's Summary Plan Description (SPD), or contact your HR or benefits department directly. If your employer does not offer a carryover, you have no way to preserve unspent money.

Even with a carryover, the carried-over amount is still subject to the use-it-or-lose-it rule in the second year. If you carry $640 forward and spend only $300 of it, the remaining $340 is forfeited at the end of year two.

Why FSAs are different from HSAs and other retirement accounts

An HSA (health savings account) is often confused with an FSA, but the two work very differently. HSA funds roll over automatically each year with no limit—you can accumulate money indefinitely and use it for medical expenses at any point in the future. HSAs also allow you to invest the balance and withdraw it tax-free in retirement for may have access to medical expenses, making them closer to a retirement account.

FSAs, by contrast, are designed for short-term medical and dependent care expenses within a single plan year. You cannot transfer FSA money to an HSA, an IRA, a 401(k), or any other account. The funds exist only within the FSA and must be spent on covered expenses during the plan year or lost.

If you have both an FSA and an HSA (which is possible if your health plan qualifies), the two accounts operate independently. Money in your FSA does not affect your HSA balance and vice versa.

What counts as a covered FSA expense

FSA funds can be used for a wide range of medical and dependent care costs. Common covered expenses include copayments, coinsurance, deductibles, prescription medications, dental work, vision care, hearing aids, and mental health treatment. Dependent care FSAs cover costs for childcare, adult day care, and after-school programs for dependents under age 13.

Not all health-related expenses may have access to. Over-the-counter medications (unless prescribed by a doctor), cosmetic procedures, gym memberships, and vitamins are generally not covered. The IRS publishes a detailed list of may have access to medical expenses, and your plan documents will specify which ones your employer's FSA covers.

If you are unsure whether an expense qualifies, ask your FSA plan administrator or check your plan's documentation before you spend the money. Using FSA funds for non-may have access to expenses can result in taxes and penalties.

How to avoid losing money: planning your FSA contribution

The key to making an FSA work is estimating your expenses accurately. Review your medical and dependent care costs from the past year: How much did you spend on copayments, prescriptions, dental work, or childcare? Use that as a baseline for your current-year election.

Be conservative. It is better to contribute less and have to pay out of pocket for some expenses than to contribute too much and forfeit money at year's end. If you have a spouse with their own FSA, coordinate your elections so you do not double-contribute to both accounts.

Keep receipts and submit claims promptly throughout the year. Do not wait until December to file claims for expenses you incurred earlier—submit them as you go. This helps you track your balance and avoid surprises at year's end.

If you know you will have a large medical expense coming up (a planned surgery, orthodontic work, or a major dental procedure), time your FSA contribution to cover it. If you are unsure about your expenses, contribute a smaller amount and use your regular insurance or out-of-pocket funds for anything beyond that.

What happens if you leave your job mid-year

If you leave your job before the plan year ends, you generally lose access to your FSA balance. Some employers allow you to continue submitting claims for expenses you incurred while employed, but you cannot add new contributions or use the remaining balance for future expenses.

When you leave a job, ask your former employer or benefits administrator whether you can submit claims for past expenses and what the important date is. You may also be able to continue your FSA coverage under COBRA, though you would have to pay the full premium yourself (both the employee and employer portions). COBRA continuation is expensive and rarely worth it for an FSA.

If you move to a new job with a different FSA, the two accounts are separate. You cannot transfer your old FSA balance to the new one. Any unspent money in your old FSA is forfeited when your coverage ends.

Frequently Asked Questions

Can I roll over FSA money to an HSA?

No. FSA and HSA are separate accounts with different rules, and you cannot transfer money between them. However, you can have both accounts at the same time if your health plan qualifies. If you switch from an FSA to an HSA-may be able to access plan, any unspent FSA money is forfeited.

What if I have money left in my FSA at the end of the year?

If your employer does not offer a carryover provision, the money is lost. If your employer does offer a carryover, up to $640 carries forward to the next year automatically. Any amount over $640 is forfeited. You cannot withdraw it as cash or transfer it elsewhere.

Can I change my FSA contribution during the year?

You can only change your FSA election during open enrollment or if you have a may have access to life event (marriage, birth of a child, loss of other coverage, change in dependent care needs). You cannot make changes just because you want to contribute less or more.

Do FSA funds expire if I do not use them right away?

FSA funds do not expire during the plan year—you can use them anytime before the plan year ends. However, some plans have a "run-out period" of 60 to 90 days after the plan year ends during which you can submit claims for expenses incurred in the prior year. Check your plan documents for the exact important date.

What if my employer goes out of business?

If your employer closes or your benefits plan is terminated, you typically lose access to your FSA balance. Some plans may allow a brief period to submit claims for prior expenses, but you cannot carry the balance forward or recover it as cash. This is another reason to spend FSA money throughout the year rather than accumulating it.