Set aside only what you will actually spend on may be able to access medical costs in the next 12 months, because FSA money left unspent at year's end is forfeited.

The core decision is straightforward: estimate your out-of-pocket medical expenses for the coming year, then contribute that amount to your FSA. Money you don't use by the important date is gone — you cannot roll it over to the next year or withdraw it. This is called the use-it-or-lose-it rule, and it makes FSA planning different from other savings accounts.

The trade-off is worth understanding. FSA contributions reduce your taxable income, which saves you money on federal income tax, Social Security tax, and Medicare tax. But only if you use the money. Contributing too much creates a real financial loss.

Key Takeaways

  • FSA contributions come out of your paycheck before taxes, so setting aside $2,400 costs you less than $2,400 in take-home pay.
  • Any FSA money remaining on December 31 is forfeited, with limited exceptions for a grace period or carryover that your employer may offer.
  • may be able to access expenses include copays, deductibles, prescription medications, dental work, vision care, and some over-the-counter items with a prescription.
  • You can change your FSA contribution only during open enrollment or if you have a may have access to life event such as marriage, birth, or loss of coverage.
  • Underestimating is safer than overestimating, because unused money is lost, but you can increase your contribution next year if you consistently spend it all.

How to estimate your medical spending

Start with what you spent on may be able to access medical costs in the past year. Look at receipts, insurance statements, and pharmacy records. Include copays when you see a doctor, deductibles you paid toward your health insurance, prescription medications, dental cleanings and procedures, vision exams and glasses, and any over-the-counter items you bought with a prescription (such as certain pain relievers or allergy medications).

Then adjust for changes coming in the next year. Are you planning dental work? Will you need more prescriptions? Do you have a chronic condition that requires regular visits? Are you starting or stopping a medication? Add those costs in. If you're unsure whether something counts, check your employer's FSA plan document or ask the plan administrator — they can tell you exactly what is and isn't may be able to access.

Be conservative. If you spent $1,800 last year and expect a similar year, contribute $1,800 or slightly less, not $2,500. The penalty for guessing too high is real: you lose the money. The penalty for guessing too low is manageable: you pay for some expenses out of pocket and can increase your contribution next year.

The tax savings that make FSA contributions worth it

When you contribute to an FSA, that money comes out of your paycheck before federal income tax, Social Security tax, and Medicare tax are calculated. This means contributing $2,400 to an FSA might cost you only $1,700 to $1,900 in actual take-home pay, depending on your tax bracket and location.

That tax savings only happens if you use the money. If you contribute $2,400 and spend $1,500, you've lost $900 plus the tax savings you would have gotten on that $900. The math works in your favor only when you spend what you set aside.

What happens to money you don't spend

On December 31, any FSA balance you haven't used is forfeited. Your employer cannot return it to you, and you cannot carry it over to next year — with two exceptions that depend entirely on what your employer offers.

Some employers offer a grace period, usually 2.5 months into the next year, during which you can still spend the previous year's FSA money. If your employer offers this, you have until mid-March (roughly) to use December's balance. Check your plan documents or ask your benefits department whether your employer allows a grace period.

A smaller number of employers allow a carryover of up to $640 (the amount changes yearly) into the next plan year. This is less common and usually only available if your employer chose this option when setting up the plan. Again, your plan documents will say whether this applies to you.

If your employer offers neither a grace period nor a carryover, unspent money is straightforward gone. This is why conservative estimates matter.

When you can change your FSA contribution

You choose your FSA contribution amount during your employer's open enrollment period, usually in the fall for a plan year starting January 1. Once you've made that choice, you're locked in for the full year.

You can change your contribution mid-year only if you have a may have access to life event: marriage, divorce, birth or adoption of a child, loss of health coverage, significant change in medical costs, or a change in your spouse's employment or benefits. You typically have 30 to 60 days after the event to notify your benefits department and adjust your contribution.

If you realize in July that you overestimated, you cannot lower your contribution unless a may have access to event has occurred. This reinforces why starting conservative is the safer strategy.

Expenses that count toward your FSA

may be able to access FSA expenses fall into three main categories: medical care, dental care, and vision care. Medical expenses include copays and coinsurance, deductibles, prescription medications, and certain over-the-counter items if you have a prescription (such as insulin, allergy medications, or pain relievers). Dental expenses include cleanings, fillings, root canals, orthodontia, and dentures. Vision expenses include eye exams, glasses, contact lenses, and solution.

Items that do not count include health insurance premiums, cosmetic procedures, vitamins without a medical reason, and most over-the-counter medications without a prescription. The IRS maintains a detailed list, and your plan administrator can answer specific questions about whether a particular item or service is may be able to access.

How to track spending and avoid losing money

Keep receipts and statements throughout the year. Your FSA plan usually provides a debit card or a way to submit claims online. When you use the card, the transaction is tracked automatically. When you pay out of pocket, you'll need to submit a claim with a receipt to get reimbursed.

Set a reminder in November to review your balance. If you have money left and your employer doesn't offer a grace period, spend it before December 31 on may be able to access expenses you know are coming: stock up on prescription refills, schedule a dental cleaning, or buy contact lenses. If your employer does offer a grace period, you have more time, but don't assume you'll remember to spend it in January.

Some people deliberately set aside a small buffer — contributing $100 or $200 less than their best estimate — to account for the uncertainty. This costs a small amount in tax savings but eliminates the risk of forfeiture.

Frequently Asked Questions

Can I use my FSA for my spouse or children?

Yes, if they are covered under your health insurance plan. You can use FSA money for may be able to access medical expenses for yourself, your spouse, and any dependent children, even if they're not on your employer's health insurance. The expense must be may be able to access; the person receiving care doesn't have to be.

What if I leave my job mid-year?

You typically lose access to your FSA when you leave your employer, though you may be able to continue coverage under COBRA for the remainder of the plan year. Any unspent FSA balance is forfeited when your coverage ends, regardless of whether you've used a grace period. Check with your benefits department about COBRA may be able to access and important date.

Should I contribute the maximum allowed?

Only if you're confident you'll spend it. The annual FSA contribution limit changes yearly (it was $3,200 in 2024). Contributing the maximum makes sense only if your medical costs actually reach that amount. Overestimating costs you real money through forfeiture.

Can I get my FSA money back if I don't use it?

No, with the exceptions noted: a grace period if your employer offers one, or a carryover of up to $640 if your employer allows it. Otherwise, unspent FSA money is forfeited and cannot be refunded. This is why accurate estimation is critical.

Is an FSA worth it if I'm healthy and don't spend much on medical care?

Only if you have predictable expenses: regular prescriptions, annual dental work, or vision care. If you rarely see a doctor or buy medications, the tax savings on a small contribution might not justify the risk of forfeiture. A Health Savings Account (HSA), if you're may be able to access, offers more flexibility because unused money rolls over year to year.