Do you maintain a flexible spending account (FSA) for your medical needs? If so, consider this a friendly reminder: check your balance soon. The clock is ticking on when you can use those funds.
FSAs are largely “use it or lose it,” meaning unused funds generally vanish at year’s end. Fortunately, there’s often some leeway. The Internal Revenue Service (IRS) permits up to a 2.5-month grace period, so many plans extend coverage through March 15, 2025.
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So, what exactly is a Flexible Spending Account (FSA)?
An FSA lets you stash pretax dollars to cover medical and dental costs that your insurance won’t pick up. Employers deduct contributions from paychecks and the accounts follow IRS rules. Typically, a third-party administrator manages claims and reimbursements.
Important distinction: An FSA differs from an HSA, or health savings account. An HSA is another tax-advantaged vehicle that both you and your employer can fund to pay for qualifying medical costs with pretax money.
The major difference? You can only open an FSA through your employer, which means your employer — not you — technically owns the account. If you leave your job, leftover FSA funds generally do not follow you.
A key perk of an FSA is immediate access: the full annual contribution amount you chose during enrollment is available to you on day one of the plan year, even if payroll deductions haven’t yet covered it.
For 2024, FSA participants couldcontribute up to $3,200for the year. That limit rises to $3,300 in 2025.
The primary downside is the “use it or lose it” rule — leftover funds at year-end can disappear.
If money remains in your FSA at the end of December, your employer can offer one of two options:
- A 2.5-month grace period to spend remaining funds.
- A carryover of up to $500 to apply toward the next plan year.
Or, your employer may elect to forfeit any unused balance when the new year starts. The choice is up to your employer — not you.
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You might be surprised by what your FSA can cover
Many people use FSAs for copays and prescriptions that insurance doesn’t completely cover — but that’s just the beginning.
The IRS publishes a comprehensive list of medical products and services eligible for FSA reimbursement to help with tax preparation.
You can also discover eligible items at FSAStore.com or by searching for FSA-eligible products on Amazon.
Below are examples of expenses you might not realize are FSA-eligible:
- Eyeglasses
- Contact lenses
- LASIK eye surgery
- Menstrual products
- Allergy testing
- Acupuncture, osteopath visits, or chiropractic adjustments
- Reproductive services for men and women, including sterilization, vasectomies, lactation supplies and fertility treatments
- Pregnancy test kits, contraceptives or post-mastectomy breast reconstruction
- Costs associated with service animals, such as training, food and veterinary care
Many kinds of medical supplies qualify — even sunscreen in some cases!
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The takeaway
It might feel like the year’s end is still far off, but don’t procrastinate.
Decide how you plan to use any remaining FSA funds now.
Use it. Don’t lose it.
Read on:
- Here’s How to Start Saving Money — Even If You Don’t Have Room in Your Budget
- 31 Ways to Make Money Online & From Home in 2024
- Our Top Picks for Best Savings Accounts for December 2024
Michael Draper is a former senior writer at Savinly.
For more on pandemic-related flexible spending guidance, see fsa pandemic.
