Does your benefit plan year begin on January 1? Does your employer offer a grace period? If so, the end of your flexible spending account (FSA) grace period may be almost here! The FSA grace period is defined as a two month and 15 day period following the end of the plan year. That means FSA owners who have remaining funds from 2019 must use up their FSA money by March 15. (Some employers may offer a different date, but more on that below.)
We know what you’re thinking: Do have I have a grace period? What if my employer offers FSA rollover? Are these the same thing? Don’t worry. Here is a quick guide that breaks down the difference between the FSA grace period and FSA rollover, along with a list of how to spend those FSA funds the smart way by the deadline—whether that’s March 15, or another time of year for your plan!
What is the FSA grace period?
If you end out the plan year with FSA dollars left, the Internal Revenue Service (IRS) allows a maximum 2.5-month grace period in the new year to spend those funds. It’s important to know that not all employers offer the grace period option, and the time frame in which you could spend those remaining FSA funds from the previous year may vary by employer, as well as the plan year end date.
Your employer decides the length of the grace period, so it is important to check with your company’s benefits administrator or human resources rep to learn more about your options.
Here’s an added bonus: The FSA grace period is for both health care and dependent care FSAs—that means child care, after school programs, day care, and other dependent care options can all be factored into your spend down before March 15.
What is the FSA rollover?
At the start of the plan year, FSA owners choose how much pre-tax income to allocate to their health care expense account each month, with a maximum contribution amount of $2,750 per year for individuals (as of 2020). If you get to the end of the plan year with FSA funds remaining, employers can choose to allow employees to roll over up to $500 of health care FSA dollars to spend at the start of the new plan year.
The $500 of FSA rollover does not count towards the contribution maximum for the new year, so you could potentially have as much as $3,250 in FSA dollars to spend in a year if you roll over the maximum amount (based on the current limits). This option only applies to health care expense, not dependent care.
How to Take Advantage of the FSA Grace Period
Now that we’ve covered the difference between the FSA rollover and grace period, let’s focus on the looming grace period deadline. It’s not too late to use the FSA funds you have left in your account! Here are ways to make the most of the grace period and spend your pre-tax money wisely: