The Hidden Loophole That Lets You Carry Over FSA Dollars

Many flexible spending accounts have a grace period or a carryover option, which means you have extra time to make important eye care decisions


Mom and daughter wearing glasses hugging.

Nailing down your anticipated out-of-pocket health care costs for the year is never an exact science. Yet, every fall you play the guessing game when you sign up for a health flexible spending account (FSA) at work and your boss asks you to put a price on your annual election.

FSAs, remember, let you use pretax dollars (up to $2,700 as of 2019) to pay for medical and vision expenses that aren’t paid by insurance, such as your share of a prescription drug cost. The number you elect gets locked in for the year and—with just a few exceptions, like a change in your family status—you’re not allowed to tinker with your pretax paycheck deductions. 

If you overfund your FSA and don’t rack up enough qualified expenses, you land here, reading about ways to use up your extra funds by December 31 or risk forfeiting those dollars.

But there’s a safety net you might not be aware of: The IRS gives employers the opportunity to offer either a grace period of up to 2.5 months to use the remaining funds, or a $500 carryover option.

Can’t remember if your plan has one of those extras? Reach out to the benefits coordinator at work (usually someone in human resources), or log in to your FSA account page to look up the plan details. Then put these strategies into play.

Carryover Option: Check Your Balance Now

With the carryover option, $500 of the leftover balance rolls into next year’s fund, says Adam Beck, an expert on employer-based health insurance policies who is with the industry association America’s Health Insurance Plans. 

Have $600 in your account? Sorry, the last $100 will go back to your employer. It’s like a teacher accepting late homework without giving full credit.

That’s why it’s a smart idea to see how much money you have sitting in your account now, says Beck.

Consider using that money to:

  • Get a second pair of eyeglasses to keep at work
  • Buy additional boxes of contact lenses
  • Make sure you’re covered on essentials such as contact solution or lens cleaners 
  • Pick up reading glasses
  • Get your teen fitted for a first pair of contact lenses
  • Splurge on stylish prescription sunglasses.

Log in to your FSA account page to see a complete list of qualified expenses.

Grace Period: Enjoy the Breathing Room

With this perk, your calendar year just grew to 14 months and 15 days. That means you can book eye exams for the whole family after the holiday hustle has slowed.

Or wait until you’re back from winter break to talk to your eye doctor about ditching readers and trying multifocal contact lenses for help seeing the fine print on next year’s FSA.

Just remember, you’re trading a December 31 “use it or lose it” deadline for one on March 15, says Beck. So don’t get too relaxed with your time. 

 

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