Understanding FSA Rollover Limits: What You Can Carry Over

Quick answer

• FSA rollovers allow you to carry over unused funds from one plan year to the next.
• The maximum rollover amount is typically capped by your employer’s plan or IRS regulations.
• You can usually roll over a portion, not the full balance, of your unused FSA funds.
• Unused funds not rolled over are generally forfeited at the end of the plan year.
• It’s crucial to understand your specific FSA plan’s rules and deadlines for using or rolling over funds.
• Check with your FSA administrator or HR department for exact rollover limits and procedures.

Who this is for

• Individuals with a Health Care Flexible Spending Account (FSA) who have unspent funds near the end of their plan year.
• Employees trying to maximize their FSA benefits and avoid forfeiting money.
• Anyone seeking clarity on the rules and limitations surrounding FSA rollovers.

What to check first (before you act)

Goal and timeline

Before you can understand rollover limits, you need to know what you’re aiming for and when. Are you trying to save money for a specific medical expense in the near future? Or is your goal simply to maximize the benefit of the FSA you’ve already contributed to? Knowing your personal financial goals will help you decide if rolling over funds is the right strategy for you. Your timeline is critical because FSA plan years often have strict deadlines for using funds or making rollover decisions.

Current cash flow

How much money do you currently have available after covering your essential expenses? Understanding your monthly cash flow will help you determine if you can afford to let funds roll over, or if you should prioritize using them now to avoid potential forfeiture. If your budget is tight, you might need to use your FSA funds for immediate needs rather than letting them sit for future use.

Emergency fund or safety buffer

Do you have a sufficient emergency fund in place? A robust emergency fund (typically 3-6 months of living expenses) should be your top financial priority. If your emergency fund is well-funded, you might have more flexibility to consider FSA rollovers. If not, it may be wiser to use FSA funds for immediate healthcare needs to preserve your liquid savings.

Debt and interest rates

What kind of debt are you carrying, and what are the interest rates? High-interest debt, like credit card balances, should generally be a higher priority than maximizing FSA rollovers. If you have the opportunity to use FSA funds for a necessary medical expense that would otherwise come out of savings used for debt repayment, it could be a strategic move. However, if you have significant high-interest debt, aggressively paying it down is often the best financial decision.

Credit impact

While FSA rollovers themselves don’t directly impact your credit score, how you manage your FSA funds can indirectly affect it. For instance, if you’re forced to use a credit card for unexpected medical expenses because you forfeited FSA funds, that could lead to carrying a balance and incurring interest, which can impact your credit. Understanding the overall financial picture, including how your FSA decisions might influence your spending and debt, is important.

Step-by-step: Managing Your FSA Rollover

Step 1: Identify Your FSA Plan Year End Date

What to do: Locate your FSA plan documents or contact your employer’s HR department or FSA administrator to find out the exact date your current plan year ends.
What “good” looks like: You have a clear date in mind, e.g., “December 31, 2023,” or “June 30, 2024.”
Common mistake and how to avoid it: Assuming your plan year aligns with the calendar year. Many FSAs have different fiscal years, so always verify.

Step 2: Review Your Current FSA Balance

What to do: Log in to your FSA administrator’s online portal or check your latest statement to see how much money is currently in your account.
What “good” looks like: You know your exact current balance.
Common mistake and how to avoid it: Guessing your balance. Always check the official record to avoid miscalculations.

Step 3: Understand Your Employer’s Rollover Policy

What to do: Check your FSA plan documents or ask your HR department about their specific rollover policy. Some employers allow rollovers, some offer a grace period, and some have a “use-it-or-lose-it” policy.
What “good” looks like: You know if your employer allows rollovers, and if so, what the specific rules are.
Common mistake and how to avoid it: Assuming all FSAs have the same rollover rules. Policies vary significantly by employer.

Step 4: Determine the Maximum Rollover Amount

What to do: Based on IRS guidelines and your employer’s policy, find out the maximum dollar amount you can roll over to the next plan year. This is often a specific dollar limit set by the IRS, which employers can choose to adopt or set a lower limit.
What “good” looks like: You know the exact dollar limit for rollovers, e.g., “$550 for 2023.”
Common mistake and how to avoid it: Assuming you can roll over your entire remaining balance. There’s almost always a cap.

Step 5: Assess Potential Eligible Expenses for the Remaining Plan Year

What to do: Think about any anticipated or unexpected medical, dental, or vision expenses that you or your dependents might incur before your plan year ends.
What “good” looks like: You have a list of potential expenses, including known appointments, prescriptions, or upcoming procedures.
Common mistake and how to avoid it: Waiting until the last minute to think about expenses. Plan ahead to use funds strategically.

Step 6: Calculate How Much You Might Need to Spend vs. Roll Over

What to do: Compare your current balance, potential expenses, and the rollover limit. Decide if you have more funds than you’re likely to spend and if that excess is within the rollover limit.
What “good” looks like: You have a clear picture of your balance, expected expenses, and how much you could potentially roll over.
Common mistake and how to avoid it: Not doing the math. This step is crucial for making an informed decision.

Step 7: Submit Claims for Eligible Expenses Incurred

What to do: If you have eligible expenses that you’ve paid for, submit the necessary claim forms and documentation to your FSA administrator as soon as possible, well before any claim filing deadlines.
What “good” looks like: All your eligible claims are submitted with ample time before the deadline.
Common mistake and how to avoid it: Missing claim filing deadlines. These are often separate from the plan year end date and can be several months later, but still have a firm cutoff.

Step 8: Decide on Rollover vs. Forfeiture

What to do: Based on your calculations and understanding of the rollover limit, decide how much, if any, of your remaining balance you want to roll over. If your remaining balance is below the rollover limit and you don’t anticipate needing it for immediate expenses, rolling it over is often the best choice. If your balance exceeds the rollover limit, you’ll likely need to spend the excess before the plan year ends.
What “good” looks like: You’ve made a conscious decision about your remaining funds.
Common mistake and how to avoid it: Procrastinating the decision. This can lead to missing deadlines or forfeiture.

Step 9: Confirm Rollover with Administrator (If Required)

What to do: Some FSA administrators may require you to actively elect to roll over funds, while others do it automatically. Check your administrator’s process.
What “good” looks like: You’ve completed any necessary steps to ensure your rollover is processed.
Common mistake and how to avoid it: Assuming the rollover is automatic if it’s not. Always confirm.

Step 10: Monitor Your New FSA Balance and Plan Year

What to do: Once the new plan year begins, check your FSA balance to confirm the rollover was applied correctly and understand the new plan year’s rules and deadlines.
What “good” looks like: Your rollover is reflected accurately in your new FSA balance.
Common mistake and how to avoid it: Forgetting to check. Errors can happen, so a quick verification is wise.

Common Mistakes (and what happens if you ignore them)

| Mistake | What it causes