What Happens to Your FSA Money at Year-End

FSA accounts do not roll over unused money to the next year

Money left in your Flexible Spending Account at the end of the plan year is forfeited — you lose it. This is called the "use-it-or-lose-it" rule, and it applies to nearly all FSAs. The IRS sets this requirement, and employers must follow it. If you put $2,500 into an FSA during the year and spend only $1,800 on may be able to access expenses, the remaining $700 disappears.

The only exception is a small grace period that some employers offer: a 2.5-month window after the plan year ends during which you can still submit claims for expenses you incurred during the original year. This does not add money to your account — it just extends the deadline for filing paperwork on money you already set aside. A few employers also offer a carryover of up to $640 (the amount changes yearly based on IRS adjustments), but this is uncommon and only available if your employer's plan document includes it.

Key Takeaways

• FSA funds do not carry over to the next year under the standard use-it-or-lose-it rule, so unspent money is forfeited at year-end.
• A grace period of up to 2.5 months after the plan year ends lets you file claims for expenses from the original year, but does not extend the money itself.
• Some employers offer a carryover of up to $640 into the next plan year, but only if their plan document includes this option — you must check with your employer to know if yours does.
• Dependent care FSAs never allow carryover, even if your employer offers it for medical FSAs.
• Planning your FSA contributions carefully each year is the only way to avoid losing money.

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

Your FSA plan year typically runs from January 1 to December 31, though some employers use different dates. On the last day of that year, your account balance resets to zero, regardless of how much money remains. Any unspent funds are returned to your employer's general fund — you do not receive them as a refund, and they do not transfer to a savings account or another benefit.

This rule exists because FSAs are funded with pre-tax dollars. The IRS does not allow you to carry over pre-tax money indefinitely, as that would create a tax advantage. By requiring you to spend the money within the plan year or lose it, the IRS ensures that FSAs function as intended: as a way to set aside money for predictable medical or dependent care costs in a single year.

The forfeiture happens automatically. You do not have to do anything, and your employer does not send you a notice saying the money is gone. It simply vanishes from your account on the last day of the plan year.

The grace period: a limited second chance to file claims

Some employers include a grace period in their FSA plan. This period lasts up to 2.5 months after the plan year ends — so if your plan year ends December 31, you might have until March 15 to submit claims for expenses you paid during January through December of the previous year.

The grace period does not add money to your account. It only extends the deadline for submitting paperwork. If you incurred a $300 dental expense in November but did not file the claim until January, the grace period lets you submit that claim and be reimbursed from the money you set aside in the previous year. Without a grace period, that claim would be rejected because it arrived after the plan year ended.

Not all employers offer a grace period. You must check your plan documents or ask your benefits administrator whether yours does. If your employer does offer one, they should tell you the exact end date each year.

FSA carryover: rare, but worth checking for

A small number of employers allow you to carry over up to $640 of unspent FSA money into the next plan year (this dollar amount is adjusted annually by the IRS). This is not automatic — your employer must have chosen to include carryover in their plan document when they set it up. If they did, you keep the money instead of losing it.

Carryover is most common in medical FSAs. Dependent care FSAs almost never allow carryover, even if your employer offers it for medical FSAs. This is an IRS rule specific to dependent care accounts.

To find out whether your employer offers carryover, check your plan documents or contact your benefits administrator directly. Do not assume it is available just because you have an FSA — most employers do not offer it.

Dependent care FSAs have stricter rules

If you have a Dependent Care FSA, the use-it-or-lose-it rule applies with no exceptions. There is no carryover option, even if your employer allows carryover for medical FSAs. The grace period may still apply if your employer includes it in the plan, but the money itself does not roll over.

Dependent care FSAs are designed for predictable annual costs like daycare or after-school programs. Because these expenses tend to be consistent from year to year, employers and the IRS assume you can estimate them more accurately than medical expenses, which are harder to predict.

How to avoid losing FSA money

The only reliable way to keep your FSA money is to spend it within the plan year. This means estimating your expenses carefully before the year begins and contributing only what you expect to use.

Start by reviewing the past two years of medical or dependent care expenses. Add up what you actually paid out of pocket for may be able to access items: copays, deductibles, prescriptions, glasses, dental work, or daycare. Look for patterns — do you always need new glasses in the fall? Do you have a regular prescription refill? Do you know your child's daycare costs for the year?

Be conservative. It is better to contribute less and have money left in your regular bank account than to contribute too much and forfeit FSA funds. You can always use a credit card or debit card to pay for may be able to access expenses and then submit the receipt to your FSA for reimbursement later in the year if you realize you have room in your account.

If you do end up with unspent money late in the year, you can sometimes make last-minute purchases of may be able to access items — over-the-counter medications, glasses, or dental work — to use up the balance. Keep receipts for anything you buy in December, in case you need to prove the purchase date.

What counts as an may be able to access FSA expense

FSA money can only be used for specific medical and dependent care costs. For medical FSAs, may be able to access expenses include copays, coinsurance, deductibles, prescription medications, glasses, contact lenses, dental work, and many over-the-counter items like pain relievers and allergy medicine (though over-the-counter medications now require a prescription from a doctor to be reimbursable).

Dependent care FSA money covers daycare, preschool, after-school programs, and summer camps — but only for children under age 13 or for an adult dependent who cannot care for themselves. It does not cover K-12 tuition or college.

The IRS publishes a full list of may be able to access expenses. If you are unsure whether something qualifies, ask your FSA administrator before you buy it. Submitting a receipt for an ineligible expense wastes time and may result in a denial.

Frequently Asked Questions

Can I transfer my FSA balance to a Health Savings Account?

No. FSA and HSA accounts are separate, and the IRS does not allow direct transfers between them. However, you can have both accounts at the same time if you are enrolled in a high-deductible health plan. You would need to spend down your FSA before the year ends and then use your HSA for the next year.

What if my employer changes their FSA plan mid-year?

If your employer eliminates the FSA or changes the plan significantly, you may be able to submit claims for expenses incurred before the change, depending on the circumstances. Contact your benefits administrator immediately if this happens — they can tell you what claims are still valid.

Do I get a refund if I leave my job before the year ends?

No. When you leave your job, your FSA account closes and any unspent money is forfeited, even if you have months left in the plan year. You can continue to submit claims for expenses you incurred while employed, but only during the grace period if your plan includes one.

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event: marriage, divorce, birth of a child, loss of other health coverage, or a significant change in dependent care costs. Outside of these events, your contribution amount is locked in for the entire plan year.

Is there any way to get my forfeited FSA money back?

No. Once the plan year ends and money is forfeited, there is no process to recover it. The only prevention is careful planning before the year begins and strategic spending throughout the year.