Understanding How FSA Rollovers Work

Quick answer

• An FSA rollover allows you to carry over a portion of your unused funds from one plan year to the next.
• Not all FSAs are eligible for rollovers; typically, only Health FSAs offer this option.
• There’s usually a limit on the amount you can roll over, set by IRS regulations and your employer.
• You must use the rolled-over funds within the specified carryover period, which is typically 2.5 months after the plan year ends.
• Unused funds that exceed the rollover limit are generally forfeited.
• Check your FSA plan documents or contact your administrator to understand your specific rollover rules.

Who this is for

• Individuals with a Health Flexible Spending Account (FSA) who have unspent funds at the end of their plan year.
• Employees who want to maximize their FSA benefits and avoid forfeiting money.
• Those trying to plan their healthcare spending to utilize rollover provisions effectively.

What to check first (before you act)

Your FSA Type and Rollover Eligibility

Before you can understand how an FSA rollover works, you need to know if your specific FSA plan even allows for it. Most commonly, Health FSAs offer a rollover option, while Dependent Care FSAs typically do not. Your employer’s plan documents are the definitive source for this information.

Plan Year End Date

Knowing when your plan year ends is crucial for understanding deadlines. This date determines when you need to have spent your funds or when the rollover period begins. It’s not always the same as the calendar year, so verify this with your FSA administrator.

Rollover Limit

The IRS sets a maximum amount that can be rolled over each year. Your employer’s plan may set a limit that is equal to or less than the IRS maximum. You must be aware of this limit to avoid forfeiting funds that exceed it.

Use-it-or-lose-it Rule

The fundamental principle behind FSAs is the “use-it-or-lose-it” rule. This means that any funds not used by the end of the plan year, or within any grace period or rollover allowance, are generally lost. Understanding this rule highlights the importance of managing your FSA funds proactively.

Step-by-step (how FSA rollovers work)

1. Verify Your FSA Type:

• What to do: Check your benefits enrollment materials or contact your HR department or FSA administrator to confirm if you have a Health FSA or a Dependent Care FSA.
• What “good” looks like: You have a clear understanding of your FSA type and its specific provisions.
• Common mistake: Assuming all FSAs offer rollovers.
• How to avoid it: Always confirm your FSA type and its rollover policy directly with your administrator.

2. Identify Your Plan Year End Date:

• What to do: Locate your FSA plan documents or ask your administrator for the exact end date of your current plan year.
• What “good” looks like: You know the precise date your plan year concludes.
• Common mistake: Using the calendar year as a default.
• How to avoid it: Refer to official plan documents or confirm with your administrator, as plan years can vary.

3. Understand the IRS Rollover Maximum:

• What to do: Research the current IRS maximum rollover amount for Health FSAs. This amount can change annually.
• What “good” looks like: You know the most you can roll over, as determined by the IRS.
• Common mistake: Not knowing the IRS limit.
• How to avoid it: Check IRS publications or reliable financial news sources for the most recent annual limit.

4. Check Your Employer’s Specific Rollover Limit:

• What to do: Your employer may have a rollover limit that is lower than the IRS maximum. Check your plan documents or ask your administrator.
• What “good” looks like: You know your employer’s specific rollover cap.
• Common mistake: Assuming your employer’s limit is the same as the IRS limit.
• How to avoid it: Always confirm your employer’s specific policy, as it may be more restrictive.

5. Assess Your Unused Funds:

• What to do: Review your FSA account balance to determine how much money you have remaining before your plan year ends.
• What “good” looks like: You have a clear picture of your current FSA balance.
• Common mistake: Not tracking your balance throughout the year.
• How to avoid it: Regularly check your FSA portal or statements.

6. Determine Your Rollover Amount:

• What to do: Compare your unused funds to your employer’s rollover limit. The amount you can roll over is the lesser of your unused balance or the plan’s limit.
• What “good” looks like: You’ve calculated the exact amount eligible for rollover.
• Common mistake: Miscalculating how much can be rolled over.
• How to avoid it: Apply the lower of your balance or the plan’s maximum.

7. Understand the Carryover Period:

• What to do: Confirm the duration of the carryover period. This is the timeframe after the plan year ends during which you can use your rolled-over funds. It’s often 2.5 months.
• What “good” looks like: You know the exact end date for using your rolled-over funds.
• Common mistake: Forgetting about the carryover period deadline.
• How to avoid it: Note the carryover end date immediately after your plan year ends.

8. Plan for Eligible Expenses:

• What to do: Identify eligible healthcare expenses you anticipate incurring during the carryover period.
• What “good” looks like: You have a list of potential medical, dental, or vision expenses that qualify for FSA reimbursement.
• Common mistake: Not having a plan for how to spend the rolled-over funds.
• How to avoid it: Proactively research eligible expenses or anticipate upcoming healthcare needs.

9. Submit Claims for Rolled-Over Funds:

• What to do: When you incur eligible expenses during the carryover period, submit claims for reimbursement according to your FSA administrator’s process.
• What “good” looks like: Your claims are submitted and approved for reimbursement within the carryover period.
• Common mistake: Missing the claim submission deadline for the carryover funds.
• How to avoid it: Submit claims as soon as possible and keep track of submission deadlines.

10. Forfeit Excess Funds:

• What to do: Understand that any unused funds exceeding the rollover limit (or if your plan doesn’t offer a rollover) will be forfeited.
• What “good” looks like: You’ve spent as much as possible and accepted that any excess is lost, having planned accordingly.
• Common mistake: Unintentionally leaving funds unused that could have been rolled over or spent.
• How to avoid it: Proactive spending and understanding rollover limits throughout the year.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not confirming FSA type	Inability to roll over funds if it’s a Dependent Care FSA.	Always verify if you have a Health FSA or Dependent Care FSA and check the specific rollover rules for your plan.
Ignoring the plan year end date	Missing the deadline to spend funds or initiate a rollover.	Mark your plan year end date on your calendar and understand the subsequent rollover period.
Overlooking the IRS rollover maximum	Assuming you can roll over any amount, leading to forfeiture of excess funds.	Know the current IRS annual maximum for Health FSA rollovers.
Not checking employer-specific rollover limits	Assuming your employer’s limit matches the IRS maximum.	Consult your employer’s plan documents or administrator for their specific rollover cap, which may be lower than the IRS limit.
Failing to track FSA balance	Not knowing how much you have left to spend or roll over.	Regularly check your FSA account balance through your administrator’s portal or statements.
Not planning for eligible expenses in the carryover	Rolled-over funds expire unused because you couldn’t find qualifying expenses.	Research eligible expenses in advance and anticipate potential healthcare needs during the carryover period.
Missing the claim submission deadline	Inability to get reimbursed for expenses incurred during the carryover period.	Submit reimbursement claims promptly and be aware of the specific deadlines set by your FSA administrator.
Spending unnecessarily to avoid forfeiture	Purchasing items or services you don’t truly need, wasting money.	Focus on necessary healthcare expenses and use the rollover as a benefit, not a mandate to overspend.
Not understanding the grace period vs. rollover	Confusing a grace period with a rollover, leading to missed deadlines.	Understand that a grace period extends the spending time within the <em>same</em> plan year, while a rollover moves funds to the <em>next</em>.

Decision rules (simple if/then)

• If you have a Health FSA, then you may be eligible for a rollover because Health FSAs often include this provision.
• If your FSA plan documents state “no rollover,” then you cannot roll over any unused funds because your employer has opted out.
• If your unused balance exceeds the IRS rollover maximum, then only the maximum amount can be rolled over, and the excess is forfeited.
• If your unused balance is less than the IRS rollover maximum, then the full unused balance can be rolled over, provided it’s within your employer’s specific limit.
• If your employer’s rollover limit is lower than the IRS maximum, then you are subject to your employer’s lower limit because plan rules cannot exceed IRS guidelines but can be more restrictive.
• If your plan year ends December 31st and has a 2.5-month carryover, then you have until March 15th of the following year to use the rolled-over funds.
• If you have a Dependent Care FSA, then you generally cannot roll over unused funds because this provision is typically only for Health FSAs.
• If you don’t spend your rolled-over funds by the end of the carryover period, then those funds will be forfeited because you missed the deadline.
• If you are unsure about your specific plan rules, then contact your FSA administrator or HR department because they have the definitive information.
• If you have a grace period and a rollover option, then understand the distinct deadlines for each; you can’t use both for the same funds.

FAQ

Can I roll over funds from a Dependent Care FSA?

Generally, no. Dependent Care FSAs have a strict “use-it-or-lose-it” rule, and funds cannot be rolled over to the next plan year.

What’s the difference between a grace period and a rollover?

A grace period extends the time you have to spend funds within the current plan year, usually by a set number of months. A rollover moves a portion of unused funds from the end of one plan year into the next plan year.

How do I know if my employer offers an FSA rollover?

You should check your Summary Plan Description (SPD) or contact your HR department or FSA administrator. This information is specific to your employer’s plan.

What if I have more money in my FSA than the rollover limit?

Any amount that exceeds the IRS or employer-defined rollover limit will typically be forfeited. It’s important to spend down your balance as much as possible within the plan year.

Do I need to re-enroll to use rolled-over FSA funds?

No, you do not need to re-enroll to use the rolled-over funds. However, you will need to make new elections for the upcoming plan year during your open enrollment period.

Can I use rolled-over FSA funds for any medical expense?

Rolled-over funds can only be used for eligible healthcare expenses as defined by your Health FSA plan, similar to regular FSA funds.

When do I need to submit claims for rolled-over funds?

You must submit claims for eligible expenses incurred during the carryover period by the end of that period, as defined by your plan.

What this page does NOT cover (and where to go next)

• Specific tax implications of FSA usage and rollovers. (Next: Consult a tax professional or review IRS publications on FSAs.)
• Detailed lists of all eligible and ineligible FSA expenses. (Next: Refer to your FSA administrator’s list of qualified medical expenses.)
• How to choose between an FSA and an HSA (Health Savings Account). (Next: Research Health Savings Accounts and compare their features to FSAs.)
• The process for submitting claims for FSA reimbursement. (Next: Review your FSA administrator’s claim submission guidelines and required documentation.)
• Rules for FSAs in different states or specific employer types. (Next: Check state-specific regulations or consult with your employer’s benefits specialist.)