Written and medically reviewed by Dorcas Morak, Pharm.D
A Flexible Spending Account (FSA) is a powerful financial tool that allows you to save on healthcare costs by using pre-tax dollars. This can significantly reduce your taxable income, making it an appealing benefit. However, there’s an important caveat: if you don’t use your FSA funds by the end of the year or by the expiration of any applicable grace period, you risk losing them. It’s essential to know how to utilize your FSA funds before they expire to maximize their benefits. Here's a comprehensive guide to help you make the most of your FSA and avoid leaving any money on the table.
What is an FSA?
An FSA is a tax-advantaged account that lets you set aside a portion of your paycheck for eligible medical expenses. Unlike Health Savings Accounts (HSAs), FSA funds typically must be used within the plan year or they will be forfeited. Some employers, however, may offer a 2.5-month grace period or allow a carryover of up to $610 (as of 2024) to the next year. It’s important to check the specifics of your plan to understand which option applies to you.
Can an FSA Expiration Extend Beyond Year-End?
Many employers provide a grace period of up to 2.5 months after the plan year ends to use remaining FSA funds. For example, if your plan year ends on December 31st, you may have until March 15th of the following year to use your funds. Additionally, some plans offer a carryover option, which allows you to roll over a limited amount (up to $610) of unused funds into the next year. Be sure to verify with your HR department whether your plan offers a grace period or a carryover option, as these features are mutually exclusive.
How to Spend Your FSA Balance
If the year-end is approaching and you still have FSA funds to use, here are several strategies to spend them wisely:
- Schedule Medical Appointments: Use your FSA for annual check-ups, physical exams, dental cleanings, or eye exams.
- Purchase Medical Supplies: FSA funds can be used for over-the-counter medications like ibuprofen (Advil) or for medical supplies like bandages, thermometers, and blood pressure monitors.
- Stock Up on Health Products: Items such as hand sanitizers, menstrual care products, and personal protective equipment (PPE) are FSA-eligible.
- Plan for Future Needs: If you know you’ll need new prescription glasses, prenatal vitamins, or medical equipment, use your FSA to purchase these items before the deadline.
What Are Eligible FSA Expenses?
To maximize your FSA spending, it’s crucial to know what items and services are eligible. Common eligible expenses include:
- Prescription medications
- Over-the-counter medications (without a prescription)
- Medical supplies (bandages, thermometers, first aid kits)
- Vision care (prescription glasses, contact lenses, eye exams)
- Dental care (teeth cleanings, orthodontic treatments)
- Insulin and diabetic supplies
- Sunscreen (SPF 15 or higher)
- Prenatal vitamins
- Personal protective equipment (masks, hand sanitizer)
- Menstrual care products (tampons, pads, menstrual cups)
Less common but eligible items may also include:
- Acne treatment products
- Fertility treatments
- Heating pads
- Blood glucose test strips
- Foot massagers
- Condoms
- Reading glasses
What If You Spend Your FSA Funds on Ineligible Items?
If you mistakenly use your FSA funds for non-eligible items, your plan administrator may require you to repay the amount. However, in some cases, a letter of medical necessity from your healthcare provider can qualify certain expenses as eligible. Common ineligible items include:
- Everyday personal care products (e.g., toothpaste, deodorant)
- Gym memberships
- Health insurance premiums
What If You Don’t Use All Your FSA Funds?
If you have unspent FSA funds as the year-end approaches, it’s important to act quickly. Check your FSA’s deadline and make a list of potential purchases or appointments to maximize your funds. Keep in mind that any unused funds may be forfeited and revert back to your employer.
One useful tip is to refill prescriptions or stock up on over-the-counter medications that you may need in the upcoming months. You can also use RxLess to help you find the best prices on prescription medications, making your FSA funds stretch even further.
Maximizing FSA Contributions
It’s also important to carefully consider how much you contribute to your FSA each year. If you typically have consistent healthcare costs, you can estimate your medical expenses for the year, including regular prescriptions, co-pays, and planned treatments, to determine an appropriate contribution amount. Keep in mind that FSAs have a contribution limit, which is $3,050 for 2024.
What About Dependent Care FSAs?
In addition to healthcare-related FSAs, some employers offer Dependent Care FSAs, which allow you to set aside pre-tax dollars to pay for eligible dependent care expenses, such as daycare, preschool, or elder care. Dependent Care FSAs are also subject to a "use-it-or-lose-it" rule, so it’s important to plan ahead for these funds as well.
Key Deadlines and Dates
- December 31st: For most FSAs, this is the deadline to use your funds.
- March 15th: If your plan includes a grace period, you typically have until this date to spend any remaining funds.
- April 15th: The deadline for submitting reimbursement claims, in some cases, may extend to this date, depending on your plan’s rules.
Be sure to review your specific plan to understand these dates, and set reminders to ensure you don’t miss any important deadlines.
