Flexible Spending Accounts: Grace Period vs. Carryover

Wednesday January 16th, 2019

Flexible spending accounts have a “use it or lose it” rule that applies to the funds. Historically, this rule was the only option for flexible spending account holders. However, two important changes have emerged in the past decade that may allow account holders a bit of breathing room if they don’t use their funds by December 31.

The first change is a grace period, which provides account holders with the option to spend down the remainder of the balance in the FSA up to as late as  March 15, if the account runs on a standard January-December plan year.

 

The second change is a carryover, which allows the account holder to carry up to $500 remaining in the account to the next plan year. The sponsor of the FSA, typically the employer, can elect to use  a lower carryover amount, but it must be the same for all participants and meet current FSA plan rules. Carrying over funds from the previous year does not apply to the maximum, so the account holder could potentially have up to an extra $500 in their account for the following plan year. For example, the 2019 limit is $2,700. If an account holder carried over $500, their FSA could contain $3,200 for 2019 health expenses.

 

An FSA cannot have both a grace period and a rollover. It can only have one or the other, or it may have neither and enforce the traditional “use it or lose it” rule. Account holders should check with their plan administrator, benefits representative, or HR department to find out if either of these rules applies to their FSA. 

 

This article was tagged with: fsa, grace period, Carryover, changes