Yes, most FSAs have a use-it-or-lose-it rule, but there are two ways to carry money forward

The use-it-or-lose-it rule means that money left in your FSA at the end of the plan year does not roll over to the next year — you forfeit it. However, your employer can offer one of two options to soften this rule: a grace period (usually 2.5 months into the new year to spend remaining funds) or a carryover (up to $640 in 2024, though this amount changes yearly). Some employers offer both. If your plan offers neither, unspent money is gone.

This rule exists because FSAs are funded with pre-tax dollars. The IRS does not allow you to carry pre-tax money forward indefinitely — that would let you avoid taxes on income you never actually spent. The forfeiture is the trade-off for getting the tax break in the first place.

Whether you lose money depends entirely on what your employer's plan document says. You need to know which option (if any) your plan offers before the plan year ends, because the important date to spend or lose money is fixed.

Key Takeaways

  • Money left in your FSA at the end of the plan year is forfeited unless your employer's plan includes a grace period or carryover option.
  • A grace period lets you spend remaining FSA funds for 2.5 months (or up to 3 months) into the next plan year on may be able to access expenses.
  • A carryover lets you roll up to $640 (in 2024) into the next year, though this amount is set by the IRS and changes annually.
  • You must check your plan documents or ask your benefits administrator which option your employer offers — not all plans include either one.
  • Forfeited money goes back to your employer or is used to pay plan administration costs; you cannot recover it.

How the grace period works

If your employer's FSA plan includes a grace period, you have extra time after the plan year ends to spend your remaining balance on may be able to access medical, dental, or vision expenses. The grace period is typically 2.5 months but can be up to 3 months, depending on your plan. For example, if your plan year ends on December 31, a 2.5-month grace period would let you spend remaining funds through mid-March of the next year.

The grace period applies only to expenses you incur during that window — you cannot retroactively claim expenses from the old plan year. You also cannot mix grace period spending with carryover funds; your plan will have one or the other, not both.

The grace period is useful if you know you have unspent money but can schedule medical or dental work in the first few months of the new year. However, it does not solve the problem of overestimating how much you will spend, because you still lose any money not spent by the grace period important date.

How the carryover option works

A carryover allows you to roll unused FSA funds into the next plan year, up to a limit set by the IRS. For 2024, the carryover limit is $640. This amount is adjusted annually for inflation, so it will change in future years. Your employer decides whether to offer carryover and may set a lower limit than the IRS maximum.

If you have $800 left at the end of the year and your plan offers carryover, you keep $640 and lose $160. The carryover funds sit in your FSA and are available to spend on may be able to access expenses during the next plan year, just like new contributions.

Carryover is more flexible than a grace period because the money stays in your account for the full next year, not just a few months. However, the IRS limit means you cannot carry forward more than the annual maximum, so very large balances will still result in forfeiture.

Why you should estimate carefully before the plan year starts

The best way to avoid losing money is to estimate your medical, dental, and vision expenses accurately when you enroll. Look back at what you actually spent in the previous year, factor in any planned procedures or changes (like starting a new prescription or getting braces), and choose a contribution amount you are confident you will use.

Remember that FSA funds cover more than just doctor visits: they pay for copays, coinsurance, deductibles, prescription medications, dental work, vision care, and many over-the-counter items like pain relievers, allergy medicine, and first-aid supplies. If you have a high deductible health plan, you might spend more on FSA-may be able to access items than you think.

If you are unsure, it is safer to contribute less rather than more. You can always pay out of pocket for expenses that exceed your FSA balance, but you cannot recover money you have already forfeited.

What happens to forfeited money

When you do not spend your FSA balance by the important date (end of the grace period, if one exists, or end of the plan year if not), the money does not go back to you. Instead, it goes back to your employer or is used to pay the costs of administering the FSA plan, such as the fees the plan administrator charges.

Some employers use forfeited funds to reduce the cost of the plan for all employees in the next year, which can mean slightly lower premiums or administrative fees. However, you have no way to recover your own forfeited money, and you cannot claim it as a deduction or loss on your taxes.

Checking your plan documents before the important date

Your employer should provide a summary of your FSA plan when you enroll, usually called a Summary Plan Description or Plan Document. This document states whether your plan includes a grace period, a carryover, both, or neither. If you cannot find this document, contact your benefits administrator or human resources department and ask directly: "Does my FSA plan include a grace period or carryover option?"

Do not assume your plan has either option just because you have heard of them. Many plans offer neither, and you need to know before the plan year ends so you can decide whether to spend down your balance or accept the loss.

If your plan year is ending soon and you have unspent money, check your plan documents now. If a grace period applies, you may have months left to spend. If only carryover applies, you can roll forward up to the limit. If neither applies, you have a few weeks to schedule any remaining may be able to access expenses before the important date.

Frequently Asked Questions

Can I get my forfeited FSA money back?

No. Once the important date passes, forfeited money cannot be recovered. It goes to your employer or is used to pay plan administration costs. This is why it is important to spend your balance before the important date or know whether your plan offers a grace period or carryover.

What if I did not know about the use-it-or-lose-it rule and lost money?

Unfortunately, the forfeiture stands. However, you can prevent this in future years by contributing a lower amount or by asking your benefits administrator whether your plan offers a grace period or carryover. If your plan does offer one of these options and you were not told about it, contact your benefits administrator to ask whether an exception can be made.

Can I change my FSA contribution mid-year if I realize I will not spend it all?

No, not normally. FSA contributions are locked in for the plan year and cannot be reduced unless you have a may have access to life event (such as a change in health coverage, birth of a child, or loss of a dependent). Losing money to forfeiture is not considered a may have access to event.

Does the carryover limit increase every year?

The IRS adjusts the carryover limit annually for inflation. In 2024 it is $640, but it may be higher or lower in other years. Your benefits administrator will tell you the current limit when you enroll or when the plan year is ending.

If my plan has both a grace period and carryover, can I use both?

No. Your plan will have one or the other, not both. If your plan includes a grace period, you spend remaining funds during that window. If it includes carryover, unused funds roll into the next year up to the limit. Check your plan documents to see which option applies.