When Your FSA Money Rolls Over—and When It Doesn't

FSA funds do not roll over to the next year under the standard "use-it-or-lose-it" rule

Money left in your Flexible Spending Account at the end of the plan year is forfeited—you cannot carry it forward to spend in the following year. This is the default rule for FSAs, and it applies unless your employer's plan document specifically includes one of two exceptions.

The IRS allows employers to offer either a grace period (an extra 2.5 months to spend remaining funds) or a carryover option (up to $640 carried to the next year, as of 2024). Your employer chooses which, if either, to include. You cannot have both in the same plan year.

If you do not know which option your plan offers, check your Summary Plan Description or call your benefits administrator. The answer determines how much of your unspent balance you can access after December 31.

Key Takeaways

• FSA funds left unspent at year-end are lost unless your employer's plan includes a grace period or carryover option.
• A grace period lets you spend remaining funds through mid-March of the following year; a carryover lets you carry up to $640 into the next plan year.
• Your employer decides which option (if any) to offer—you cannot choose between them.
• Contributions stop when you leave your job, but you may be able to spend remaining FSA funds through COBRA or a limited grace period.

How the grace period works

If your plan includes a grace period, you have until the 15th of the third month after your plan year ends to spend any remaining balance. For most employers on a calendar-year plan, this means you can spend unspent FSA funds through March 15 of the following year.

The grace period applies to the same types of expenses your FSA normally covers—medical, dental, and vision care for you and your dependents. You submit receipts and claims just as you would during the regular plan year. Any balance still remaining after the grace period ends is forfeited.

The grace period is useful if you have predictable expenses you know are coming in January or February—prescription refills, dental work, or vision exams scheduled for early in the year. It gives you time to use funds without having to guess your spending in November and December.

How the carryover option works

If your plan includes a carryover option, you can carry forward up to $640 of your unused FSA balance into the next plan year (the limit is set by the IRS and may change annually). Any amount over $640 is forfeited.

Carryover funds are added to your new plan year balance. If you contribute $3,000 in the new year and carry over $400, your total FSA balance for that year is $3,400. You spend from this combined pool throughout the new plan year under the same rules as before.

Carryover is most useful if you consistently have leftover funds and want to increase your total spending power in the following year. It also gives you more flexibility than a grace period—you have the full 12 months of the new plan year to use the carried-over amount, not just 2.5 months.

What happens to your FSA when you leave your job

When you terminate employment, your FSA contributions stop immediately. You cannot make new contributions for the remainder of that plan year, even if you leave partway through.

Your ability to spend funds already in the account depends on your employer's plan and whether you elect COBRA coverage. If you elect COBRA (Consolidated Omnibus Budget Reconciliation Act), you can continue your FSA and spend the remaining balance, but you pay the full premium yourself—both the employee and employer portions. COBRA FSA coverage typically lasts 18 months.

If you do not elect COBRA, you may still have a limited window to submit claims for expenses incurred before your termination date. Check with your benefits administrator about the claims deadline. Any unspent balance is forfeited when your coverage ends.

How to estimate your FSA contribution to avoid forfeiture

The use-it-or-lose-it rule makes FSA contribution decisions risky. To avoid losing money, estimate your actual spending for the coming year as closely as possible.

Review your past medical, dental, and vision expenses. Include predictable costs: prescription refills, annual eye exams, dental cleanings, and any planned procedures. Add a small buffer for unexpected visits, but do not inflate the number to use up a higher contribution limit.

If your plan includes a grace period, you can contribute slightly more because you have extra time to spend it. If your plan includes carryover, you can carry forward up to $640, so overshooting by that amount is less risky. If your plan has neither option, be conservative—it is better to contribute less and have money left in your paycheck than to forfeit FSA funds.

Life changes also matter. If you are planning a major medical procedure, dental work, or vision correction in the coming year, that is the time to increase your FSA contribution. If you expect lower medical spending, reduce it.

Changes to FSA rules during the COVID-19 pandemic

The IRS temporarily relaxed the use-it-or-lose-it rule in 2020 and 2021, allowing some employers to let employees carry over unused FSA funds or extend grace periods. These temporary rules have ended, and standard rules now apply.

However, some employers may have permanently changed their plans based on what they learned during this period. A few now offer both a grace period and carryover in the same year (which was not allowed before). Check your current plan document to see if your employer made any permanent changes.

Frequently Asked Questions

Can I roll over FSA funds to a Health Savings Account?

No. FSA funds cannot be transferred to an HSA, even if you switch to a high-deductible health plan. You must spend remaining FSA funds before your coverage ends or lose them. However, you can open an HSA in the same year you leave your FSA-may be able to access plan, as long as you meet HSA may be able to access rules.

What if I have a major medical expense in January—should I contribute more to my FSA?

Yes, if the expense is certain. Estimate the cost and contribute enough to cover it, plus a small buffer for other predictable spending. If your plan has a grace period or carryover, you have more flexibility to contribute slightly more without risk of forfeiture.

Does the grace period mean I can spend money in March that I did not contribute yet?

No. The grace period only applies to funds you already contributed in the previous plan year. You cannot spend money from your new plan year contribution during the grace period—that money is separate and available starting January 1 of the new year.

If my employer offers both a grace period and carryover, which one applies?

Your employer chooses one or the other for each plan year—you cannot have both at the same time. Check your Summary Plan Description or ask your benefits administrator which option your plan uses for the current year.

Can I get my FSA money back if I do not use it?

No. Forfeited FSA funds go to your employer or the plan administrator, not back to you. This is why careful contribution planning and understanding your plan's grace period or carryover rules matter.