Health Care 

How to use up Flexible Spending Account money by the end of the year

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You don't have to buy medicine to use up Flexible Spending Account money.If you have a Flexible Spending Account (FSA), you’re probably familiar with the dreaded “use it or lose it” rule. If unused by the end of the year, any money that remains in your account could be forfeited. So if you need to use up Flexible Spending Account money before the end of the year, what are your options?

A new rule from the Treasury Department will permit some carryover, says Gene King, corporate communications director of H&R Block.

“Employers have the option to allow employees who have flexible spending accounts to carry over up to $500 to the following year,” King says.

The new rule is effective immediately, but of course, employers aren’t required to allow that carryover.

Before we outline the options for spending a remaining balance, let’s look at what happens to your funds if they go unspent by the end of the year. The money could go back to your employer, who can generally only use the leftovers for FSA-related expenses, including administrative fees. But depending on your employer’s decisions, the leftover money may not be a total loss. They have a few options that could still benefit you:

  • They can redistribute the leftovers equally into employers’ accounts.
  • They can use it for a charitable donation (not a direct benefit, but you might feel warm and fuzzy)
  • They can give you a “grace period,” extending your benefit period to March 15 of the following year.
  • They can now allow you to carry over $500 into the following year (King says that you can’t have the grace period and the new $500 carryover option, however.)

None of these sound terribly appealing? Don’t think your employer will permit a rollover? Don’t worry — you still have options. There are plenty of ways to spend your FSA balance. Participants “may use funds to pay for doctor visits, prescriptions, lab work and hospital bills,” King says.

Need eyeglasses or contacts? Make an appointment for a vision exam. Need to refill a prescription? Call your doctor and get thee to a pharmacy. Back hurts? Consider an acupuncture or chiropractic visit, both of which can be paid for with FSA funds.

While over-the-counter drugs now need a prescription to be eligible, there are plenty of other FSA-eligible over-the-counter items that don’t require a prescription: bandages, breast pumps and reading glasses, for example. Purdue University has developed this handy database of eligible and ineligible items.

Tell us — do you have a Flexible Spending Account? How do you handle the “use it or lose it” rule?

(Photo: flickr user Danzil Raines)

{ 5 comments, please add your thoughts now! }

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5 Responses to “How to use up Flexible Spending Account money by the end of the year”

  1. JoeTaxpayer says:

    I say “Kill the FSA”
    Huh? Yes, kill it. The HSA, Health Savings Account is far better. A $6550 family limit, and no use-it-or-lose-it rule. It currently has a requirement of High Deductible insurance coverage, which is the obstacle for many. Congress should kill the FSA and expand eligibility for the HSA.

    I think that the tax code is too convoluted, like a huge building held together with duct tape. Mind you, I’m not complaining about my tax bill. I just think the process is out of control. Every time Congress changes something, they should be required to simplify and reduce the code. Don’t remove use it/lose it, just kill the FSA and expand HSA.

  2. Claes Bell says:

    It does get a little labyrinthine, especially w/r/t medical spending. I agree that we probably need a complete overhaul to reduce complexity and make it more coherent/less insane (unfortunately that would require a functioning government). That being said, though, I use the heck out of my FSA and I feel like it saves me a lot of money. I’ve got two young kids who are always going to the doctor, so that makes a big difference for me.

  3. Kristin Wong says:

    I feel like the FSA gets a bad rap especially when compared to the HSA. Maybe beyond the comparison, it’s not so bad? The process does seem disorganized though.

  4. Patrick says:

    This article should be rephrased that it’s not on a calendar year, and instead on a benefit year. So items like the grace period should be listed as so many days instead of a calendar date. My plan year doesn’t even expire until 4/30 and my grace period runs through June.

  5. John says:

    I work for the state of michigan. I have the March 15th grace period to incur additional expenses on the previous year’s balance.

    I’d like to purchase hearing aids for my wife in February. The cost is $4100. I have $2500 in my 2013 fsa. I’d like to use most of my balance for 2014 to pay the remainder of the hearing aid cost. I’ve been told this can be done. Any comments would be appreciated.

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