Flexible Spending Accounts: How to Use or Lose It by Year’s End
A big shopping deadline is drawing near for some people, and it has nothing to do with the holidays. Millions of people use flexible spending accounts to help pay for health care, and some may lose money left in those accounts if they don’t spend it by year’s end.
What are Flexible Spending Accounts?
FSAs let you set aside money from your paycheck before taxes to cover a wide range of medical expenses like copays, deductibles, eyeglasses, and other supplies. They are set up through your employer, and individuals can set aside up to $3,300 in these accounts.
Figuring out the right amount to set aside can be tricky because it involves forecasting how much care you might need. And you have to use the money by a certain point or you lose it.
What are the Deadlines?
Deadlines can vary by employer or plan administrator. In some cases, you may have to spend the money by December 31 or you will lose it. But many plans offer a grace period in the new year to let people use their remaining funds or they allow participants to carry over some of the leftover balance.
How Can I Spend My FSA Balance?
Think of medical expenses not covered by insurance. The IRS keeps a huge list of eligible expenses for both FSAs and health savings accounts. But companies can limit the expenses they’ll reimburse, so employees should check with their employers.
Eligible expenses can include:
- Travel costs to the doctor’s office
- Eyeglasses
- Bandages
- Sunscreen
- Condoms
- Tampons
- Gym memberships or electric massagers with a doctor’s note stating they are medically necessary
What is an HSA and How Does it Differ?
Health savings accounts, or HSAs, also allow you to set aside money before taxes. The difference is that you won’t lose the balance, you can keep the account if you leave your job, and some plans let you invest the money. HSAs can only be paired with high-deductible insurance plans.
Conclusion
Make sure you understand the clock and the rules. If you have an FSA, review your plan’s rules and deadlines. Consider using your FSA balance to pay for eligible medical expenses, and be mindful of the limits. If you have excess funds, consider carrying them over to the next year or using them to pay for eligible expenses.
Frequently Asked Questions
Q: What is the limit on FSA contributions?
A: Individuals can set aside up to $3,300 in FSAs.
Q: Can I carry over excess FSA funds to the next year?
A: Yes, but the IRS limits the balance carried over to $660 for 2025. Any amounts over that could be lost if they are still in your account by the plan deadline.
Q: What is the difference between an FSA and an HSA?
A: FSAs are tied to a specific insurance plan, while HSAs can be paired with high-deductible insurance plans. HSAs can be kept if you leave your job, and some plans allow investment of the money.
