Does My FSA Have a Grace Period or Rollover?

As an FSA user, you know just how important end-of-year spending is to maximizing the potential of your account. However, while the "use-it-or-lose-it" rule is still in effect and many account holders must spend their funds by the end of each plan year, there are 2 vital deadline extensions that all FSA users should be mindful of: the rollover (also known as the carryover) and the 2.5 month grace period.

FSA Rollover

What is a rollover?

An FSA rollover allows you to carry over funds from one plan year to the next. In general, an FSA rollover applies to only health FSAs and limited purpose FSAs. 

How much of an FSA's funds can carry over? 

If your employer offers a rollover, the IRS permits you to carry over a set amount of unspent funds (indexed annually, per IRS rules). You can carry over up to $610 from your 2023 FSA into 2024. For 2024 FSA accounts, you will be able to carry over $640 into 2025.

Who determines the FSA rollover amount?

Your employer determines the amount of the rollover (up to the IRS limit). Be sure to check with your plan administrator or HR representative to find out what amount, if any, you’re allowed to roll over into your next plan year. 

Will rollover funds be spent first?

Typically, funds that were carried over from the previous plan year will be spent first before your new plan year's funds are spent. 

Do the rollover funds count against your election in the next plan year? 

They do not. The available balance is transferred into the new plan year as an adjustment. This will not impact your new plan year election — in other words, you can still elect the maximum allowable amount for the new plan year and use rollover funds from the previous plan year.

FSA Grace Period

What is a grace period?

The other option employers may offer is a 2.5 month grace period. This gives account holders the ability to spend the remainder of the previous year's FSA funds before March 15 (for FSA plans ending December 31), after which any unspent funds would be forfeited back to their employer. Unlike the FSA run-out, which can be offered in conjunction with a rollover or grace period and provides up to 3 months after plan year end to spend down remaining funds for expenses incurred during the prior plan year only, the grace period allows users to spend down remaining FSA dollars on new expenses incurred within the new plan year as well.

Can your employer offer a rollover and a grace period?

In a FSA plan, your employer can either offer a rollover or grace period, but not both. A grace period works as an extension of the plan year, allowing you full access to your remaining funds to incur new claims/expenses for up to a maximum of 2.5 months after the plan year has ended. 

The Bottom Line 

Flexible spending accounts provide an excellent way to save money on health expenses, but these accounts do have restrictions. Understanding your FSA and its deadline — including knowing what happens to any money left over that you haven't used by the end of the year — is an important part of tax-savvy health spending. Be sure to check with your plan administrator or HR representative if you have any questions during the tax year.

For everything else regarding your FSA, you can rely on Shop the web's largest selection of exclusively FSA eligible products, browse product and service regulations in our Eligibility List and plan your yearly spending with our handy FSA Calculator.

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