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Additional FSA Features

Maximizing Your FSA Dollars

Your FSA plan may include one or two of the features below that can help you take full advantage of your FSA dollars. It’s up to your employer to decide which features to include — or none at all.

Important: IRS rules do not allow a health FSA to have both the carryover feature and a grace period extension. Plus, a dependent care FSA may not have a carryover.

Health FSA Carryover

With a carryover, you do not have to rush to spend all of your health FSA funds or worry about losing money when the plan year ends. It gives you even more control over your health care dollars from year to year.

If your plan has this feature, you may carry over up to $500 of unused funds into the next plan year. The IRS set the maximum carryover limit at $500, but your employer may decide to have a lesser amount.

Example: Let’s say you have a $300 carryover balance from the previous plan year. After your current plan year ends, your account has $300 of unused funds plus the $300 carryover amount from the previous plan year — a total of $600. Since the health FSA plan has a $500 carryover limit, you may only carry over $500 to the next plan year, and you forfeit the remaining $100.

Even if your plan has a carryover feature, the IRS “use-it-or-lose-it” rule still applies. You will lose the funds remaining in your health FSA after the carryover is applied and, if applicable, after the run-out period ends (see below).

Keep this feature in mind when estimating your health FSA election. And be aware that a carryover is only available for health FSAs and does not apply to dependent care FSAs.

Grace Period Extension

Your plan may include a grace period extension, which can apply to both a health FSA and a dependent care FSA. During this time frame, you may incur eligible FSA expenses and use the funds remaining in your account to cover those expenses.

The grace period begins on the first day immediately following the last day of the plan year. In most cases, it ends two months and 15 days later.

Example: Your plan year ends December 31; the grace period is two months and 15 days. Beginning January 1 through March 15 of the following year, you can incur expenses and use the remaining funds left in your FSA.

The grace period ensures that you have the opportunity to maximize your FSA funds and avoid forfeiting money through the IRS “use-it-or-lose-it rule.” You should still carefully estimate your planned expenses based on a 12-month period and make a conservative election based on that estimate.

Remember, the grace period is meant to help you when your expenses fall a little short of expectations. It is not an extension of the plan year that requires an increase in your FSA election amount.

Run-out Period

A run-out period is a pre-determined time frame after the plan year ends. During the run-out period, you may file both health FSA and dependent care FSA claims for expenses incurred during the plan year.

Example: On December 31, your plan year ends, but your FSA has a 90-day run-out period. When the next plan year begins on January 1, you have until March 31 to submit claims incurred during the previous plan year.

IRS rules state that when the run-out period is over, you forfeit any unused funds — unless your health FSA has a carryover feature, which allows you to carry over up to $500 of unused funds (see details above).

Learn about Your FSA Plan

Not all FSA plans include the features noted above. Your employer decides which plan features to include in the FSA plan as well as the time frame for each feature.

Find out if your plan includes a health FSA carryover, a grace period extension, or a run-out period. Also, verify the time limit for incurring eligible FSA expenses and filing claims under your plan. You’ll find this information in your Summary Plan Description (SPD).

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