FSA funds do not roll over to the next year under federal rules

Your Flexible Spending Account (FSA) operates on a use-it-or-lose-it basis. Money you contribute during the plan year must be spent on covered medical expenses by the end of that year or a short grace period. Any balance remaining after that window closes is forfeited to your employer — you cannot carry it forward, and you do not receive it back as cash or a refund.

The only exception is a small grace period that some employers offer. If your plan includes this feature, you get an extra 2.5 months (typically through March 15) to spend money from the previous year. Not all employers offer this grace period, so you need to check your specific plan documents to know whether you have it.

Key Takeaways

  • FSA money left unspent at the end of the plan year is lost; there is no carryover to the next year under federal law.
  • Some employers offer a grace period of up to 2.5 months into the new year to spend the prior year's balance, but this is optional and not may provide.
  • You should review your plan documents or contact your benefits administrator to confirm whether your employer's FSA includes a grace period.
  • Planning your medical expenses and contributions carefully can help you avoid losing money at year-end.
  • A small amount called a carryover (up to $610 in 2024, though this amount changes yearly) is permitted in some plans as an alternative to the grace period, but most employers do not offer this option.

How the use-it-or-lose-it rule works

The use-it-or-lose-it rule is built into FSA law. When you enroll in an FSA, you commit to a dollar amount you will contribute that plan year. That money sits in your account, and you can withdraw it to pay for covered medical expenses — copays, deductibles, prescriptions, dental work, vision care, and other may have access to costs. But the account is tied to a specific calendar or plan year, usually January through December.

On December 31 (or the last day of your plan year), any money still in the account is gone. Your employer keeps it. This is not a penalty or a fine — it is how the account is designed. The trade-off for this risk is that FSA contributions are made with pre-tax dollars, which lowers your taxable income and saves you money on taxes.

The grace period option: how it extends your spending window

Some employers choose to offer a grace period as part of their FSA plan. If your employer offers one, you get an extra 2.5 months after the plan year ends to spend money from that year. For a plan year ending December 31, the grace period typically runs through March 15 of the following year.

The grace period applies only to the prior year's balance. If you have $500 left on December 31, you can spend that $500 through March 15. Money you contribute in the new plan year (January onward) is separate and has its own deadline. The grace period is optional for employers — they can choose to offer it or not. You must check your plan documents or call your benefits administrator to know whether your FSA includes this feature.

Carryover: a less common alternative

A small number of employers offer a carryover instead of or in addition to a grace period. With a carryover, you can roll a limited amount of unspent FSA money into the next plan year. The maximum carryover amount is set by federal law and changes each year — it was $610 in 2024. Any balance above that limit is still forfeited.

Carryover is rare because it complicates plan administration and is less common than the grace period. If your employer offers it, the amount you can carry over will be stated in your plan documents. Most workers do not have access to carryover, so do not assume your plan includes it.

How to avoid losing FSA money

The best way to protect your FSA balance is to estimate your medical expenses carefully before you enroll. Look at the past year: how much did you spend on copays, prescriptions, dental visits, and vision care? Use that as a baseline for the coming year. If you are unsure, choose a lower contribution amount — you can always increase it during the next open enrollment period.

Throughout the year, keep track of your spending and your remaining balance. Most FSA plans let you check your balance online or by phone. As the year winds down, plan any remaining expenses. If you have $200 left in November, schedule a dental cleaning, buy glasses, or stock up on over-the-counter medications like pain relievers or allergy medicine (these are covered FSA expenses). If your plan includes a grace period, you have until mid-March to spend the money, which gives you more time to plan.

If you know you will not spend all your money, talk to your benefits administrator about whether your plan offers a grace period. If it does not, and you cannot spend the balance in time, you will lose it — but at least you will know in advance rather than being surprised.

What counts as a covered FSA expense

FSA money can only be used for may have access to medical expenses under IRS rules. These include copays and coinsurance, deductibles, prescription medications, dental work, vision care (glasses, contacts, exams), hearing aids, and many over-the-counter items like pain relievers, allergy medicine, and first-aid supplies. Gym memberships, cosmetic procedures, and general wellness products do not count.

The IRS maintains a detailed list of what is and is not covered. If you are unsure whether a specific expense qualifies, ask your FSA plan administrator or check the IRS website before you spend the money. Using FSA funds for non-may have access to expenses can result in taxes and penalties on that amount.

What happens if you leave your job

If you leave your job mid-year, your FSA coverage typically ends on your last day of employment or at the end of that month, depending on your employer's policy. Any money remaining in your account is forfeited — you cannot take it with you or transfer it to a new employer's FSA. This is true even if you have not yet used the money for expenses you have already incurred.

Before you leave, spend down your FSA balance as much as possible. If you have upcoming medical appointments or prescriptions, schedule or fill them before your coverage ends. After you leave, you may be able to continue FSA coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act), but this is rare and expensive, and you would need to pay the full premium yourself.

Frequently Asked Questions

Can I roll my FSA balance into a Health Savings Account?

No. FSA and HSA are separate accounts with different rules. You cannot transfer money between them. However, you can have both accounts at the same time if you are enrolled in a high-deductible health plan. Money in each account must be spent according to that account's own rules.

What if I have a major medical expense after the grace period ends?

If you have already lost your FSA balance and then face a large medical bill, you will have to pay for it out of pocket or with another payment method. This is why planning your FSA contribution carefully is important. If you know you will have major expenses coming, contribute enough to cover them, or contribute less and accept the risk of losing unspent money.

Does my employer have to tell me if I have a grace period?

Your employer should include information about the grace period in your plan documents or benefits guide. If you are not sure, contact your HR or benefits department directly. Do not assume you have a grace period — ask.

Can I get my FSA money back as a refund if I do not spend it?

No. Unspent FSA money is not refunded to you. It goes to your employer. This is part of the trade-off for the tax savings you get by contributing pre-tax dollars.

What if my employer changes the plan year?

If your employer changes when the plan year starts or ends, you will receive information about how unspent money from the old plan year is handled. Usually, you get a grace period or carryover option during the transition, but the rules vary. Read any notices your employer sends carefully.