A flexible spending account (FSA) is an account that’s funded with pre-tax money you can spend on qualified expenses. There are different types of FSAs that can help you pay for different qualified expenses like deductibles, copays, and other expenses.
If you have unused funds in your FSA, you may be wondering what happens to the money if you’re going into a new year or thinking about changing jobs. Read on to learn how funds can carry over for each type of FSA.
Do FSAs roll over?
FSAs generally have a strict “use-it-or-lose-it” mandate, which means any money left over at the end of each year must be forfeited. However, the Internal Revenue Service (IRS) now allows for some flexibility when it comes to unused funds.1
Employers can’t offer both a grace period and a rollover amount — it’s one or the other.1
Healthcare FSA rollover options
A healthcare FSA is a traditional FSA in which you can use pre-tax dollars to pay for eligible medical expenses, including some dental and vision expenses.
For health FSAs, employers typically have two options to utilize your unused funds. The first is to offer employees a grace period of up to 2.5 months to spend the remaining funds.1 The other option is to allow participants to roll over a maximum of $640 of unused funds at the end of the year, as of 2024, depending on the type of plan.1,2 Contact your plan provider to see what your options are.
Limited-purpose FSA rollover options
A limited-purpose FSA is similar to a regular health FSA, but you can only use an LP-FSA to help pay for eligible dental and vision expenses.
With an LP-FSA, employers can typically either offer a grace period or let participants roll over unused funds up to $640 (as of 2024) at the end of the plan year, depending on the plan.1,2 Contact your plan provider to learn about your options.
Dependent care FSA rollover options
A dependent care FSA is used to cover qualified medical expenses for dependents, typically defined as children under age 13 and dependents who can't take care of themselves — like elderly parents or individuals with disabilities.
DC-FSA funds typically can’t be rolled over to the next year.
Grace period vs. rollover example
Let’s assume an employer’s health FSA plan allows participants to roll over funds up to the maximum. If an employee elects to contribute $2,000 for the year but only spends $970 of their funds on qualified medical expenses, they could roll over up to $640 of the unused $1,030 into the next plan year. The excess $390 of the unused funds would be forfeited.
But if an employer opted for the grace period, the employee would need to use the remaining $1,030 within 2.5 months after the plan year ends. Whatever funds remain after the grace period would then be forfeited.
The specific rules for rolling over unused FSA funds differ depending on the type of FSA you have and the rules your employer sets.
Things to consider before rolling over your FSA
If you’re thinking about rolling over your FSA funds or taking advantage of the grace period, here are some helpful tips and considerations you may want to know about.
- Set a reminder for reimbursement at the end of the year: If your plan has a grace period, you typically have up to 2.5 months to spend any unused FSA funds the following year.1 That’s generally around March 15, though it may be sooner if your company has a shorter grace period. It may be a good idea to set a calendar reminder a couple of months or weeks before the deadline.
- FSA rollovers don’t count toward the next year's contribution limits: The amount you roll over doesn’t affect the total you can contribute for the following plan year.1 This means you can elect to contribute the full limit ($3,200 as of 2024) and still go over that amount by how much you rolled over (up to $640 as of 2024).2
- You can’t take the money with you if you leave your job: Unlike an HSA, if you leave your job, the money in your FSA often doesn’t come with you. Contact your FSA provider to learn if you're eligible for an FSA extension when you leave your job.
- Not every FSA allows rollovers: Employers aren’t required to offer rollovers or grace periods. It’s at their discretion to permit either one.3 Because of this, it can be a good idea to make sure you’re contributing only what you believe you may spend on qualifying expenses in the plan year. Contact your FSA administrator or HR department to learn what they allow.