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FSA: Use it or Lose it, Carryover, Grace Period and Run Out

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FSA Grace Period and Run Out

Flexible Spending Accounts (FSAs) – if you signed up for one, chances are you’ve heard a few terms that you may or may not be familiar with. FSAs are great tools for helping you save money on taxes while also putting money aside for out-of-pocket healthcare expenses. It’s important to fully understand phrases like “use it or lose it”, “carryover”, “grace period” and “run out”.

FSA Overview: Use it or Lose it, Carryover, Grace Period and Run Out

Use it or Lose it

This is very straightforward and is exactly what it sounds like. If you don’t spend of all your election amount by the end of the plan year, you lose the remaining balance. That’s why it is important for you to estimate your (and your family’s) expenses for the year and make your election equal that estimate.

If you’re wondering how to estimate FSA elections, read How Much Should I Put in My FSA?

Carryover

What is carryover? Carryover allows FSA participants to “carry over” a maximum of $500 in unspent FSA funds to the following year. If you elected $2,600, but only spent $2,300, you could carry over the remaining $300 to use next year. Keep in mind, if you spent $2,000, you could still carry over $500, but you would lose the remaining $100.

Plans vary by sponsor and the carryover maximum may be lower than $500.

Grace Period

Grace period is an extra amount of time after the end of the plan year that allows you to use any unspent money in your FSA. The grace period can be up to a maximum of two and half months, but may be shorter depending on plan setup.

For instance, if your plan runs from January 1, 2017 through December 31, 2017, you would have until March 15, 2018, to use all of your FSA funds. Any unused FSA balance for the 2017 plan year would be lost after the grace period ends.

Run Out Period

Run out is different than a grace period, where you have an extended amount of time to spend your money.

Run out is a predetermined period during which you can file claims for the previous year. In other words, if your run out period lasts until March 31, you would have until that time to file claims for expenses that happened before December 31. Run out periods provide a little extra time to get reimbursed. Keep in mind, the run out period varies by plan.

For example, if you visited the dentist on November 1, but you had yet to file a claim, you could still file before March 31. Any unused funds after March 31 would be forfeited.

Be sure to contact your benefits administrator or HR department, or refer to your summary plan description to get all the details for your FSA plan.

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