Your FSA plan may include a run-out period. It may also include a grace period extension that can help you take full advantage of your FSA dollars. Keep this in mind: Not all FSA plans include these two features.
A run-out period is a pre-determined period after the plan year ends. During this time period, you may file claims for expenses incurred during the plan year. When the run-out period is over, you forfeit any unused funds. It’s an IRS rule.
Example: On December 31, your plan year ends, but your plan includes a 90-day run-out period. You have until March 31 to submit claims incurred from January 1 to December 31 of the previous year.
Your plan may also include a grace period extension. This feature creates a grace period that immediately follows the end of the plan year. During this time frame, you may incur expenses and use the funds remaining in your account toward eligible FSA expenses.
The grace period begins on the first day immediately following the last day of the plan year, and in most cases, 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.
Not all FSA plans include a run-out period or grace period extension — that’s determined by your employer. And your employer decides on the time frame for each feature.
Find out if your plan includes a run-out period or a grace period extension. 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).