Your Flexible Spending Account (FSA): Use It or Lose It

Last updated 12/27/2024 by

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Summary:

Don’t let your Flexible Spending Account (FSA) funds go to waste! FSAs are often “use it or lose it” plans, and for many, the deadline to spend funds is December 31. Some employers may offer flexibility through a grace period or carryover, but unused funds are otherwise forfeited. Learn how to use your FSA dollars wisely before the year ends.

Flexible Spending Accounts (FSAs) are a great way to save on taxes while covering eligible healthcare, childcare, and other expenses. However, most FSAs operate on a “use it or lose it” rule, meaning any unspent funds are forfeited at the end of the year. For many plans, the deadline is December 31. To avoid losing your money, it’s crucial to plan your spending and take advantage of remaining funds before this critical date.

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Why December 31 matters

For the majority of FSAs, December 31 marks the end of the plan year and the deadline to spend your funds. If your employer doesn’t offer a grace period or carryover option, unused funds are forfeited. To avoid wasting money, it’s important to review your FSA balance and use your funds on eligible expenses before this deadline.

Understanding grace periods and carryovers

Some employers provide flexibility with FSA deadlines:

Grace Period: Extends the deadline to March 15 of the following year, allowing extra time to incur eligible expenses.
Carryover Option: Allows up to $610 (2024 limit) of unused funds to roll over into the next plan year.

Employers may offer one of these options, but not both, and are not required to offer either. Check with your HR department or FSA administrator to understand your plan’s rules.

Smart ways to spend your FSA funds

If December 31 is your FSA deadline, here are practical ways to use up your funds:

Medical supplies and expenses

Stock up on prescription and over-the-counter medications.
Purchase first-aid supplies, thermometers, or health monitoring devices.
Replace or upgrade medical equipment, such as crutches or humidifiers.

Vision and dental care

Schedule dental treatments, such as cleanings or fillings.
Book an eye exam and buy glasses, contact lenses, or prescription sunglasses.
Consider orthodontic or other necessary dental work.

Preventative care

Get vaccinations like flu shots or other immunizations.
Schedule physical therapy or chiropractic treatments.
Purchase prenatal or postnatal health items, such as breast pumps.

Dependent care and adoption expenses

Pay for daycare or after-school programs for children.
Cover elder care services for a dependent adult.
Offset adoption-related legal or travel expenses.

Comparing FSA and HSA: Why HSAs may be the better choice

If you’re healthy and have the option to choose between a Flexible Spending Account (FSA) and a Health Savings Account (HSA), an HSA is often the smarter choice. While both accounts provide tax advantages, HSAs offer long-term benefits that FSAs cannot match.

The triple tax benefits of HSAs

Tax-free contributions: Contributions to your HSA are made pre-tax, reducing your taxable income.
Tax-free growth: Funds in an HSA grow tax-free through interest or investment earnings.
Tax-free withdrawals: Withdrawals used for qualified medical expenses are tax-free.

Other advantages of HSAs over FSAs

Funds don’t expire: Unlike FSAs, HSA funds roll over year after year, and there’s no “use it or lose it” rule.
Portability: HSAs are owned by you, not your employer, meaning you can keep the account even if you change jobs or retire.
Investment potential: HSAs can be invested in mutual funds or other options, allowing your balance to grow over time.

When is an HSA the right choice?

HSAs are ideal for those with a high-deductible health plan (HDHP) who don’t expect significant medical expenses in the short term. If you’re generally healthy, the ability to save and grow your funds tax-free makes an HSA a superior long-term option compared to an FSA. However, if your employer only offers an FSA or you anticipate significant near-term healthcare costs, an FSA may still be a useful tool.

Frequently asked questions

What happens to unused FSA funds after December 31?

Unused funds are forfeited unless your employer offers a grace period or carryover option.

Can I use FSA funds for my family?

Yes, you can spend FSA funds on eligible expenses for your spouse or dependents.

How do I know if my plan has a grace period or carryover?

Check with your HR department or FSA administrator to confirm your plan’s specific rules.

What if I don’t have time to spend my FSA funds by December 31?

Focus on purchasing eligible items you’ll use throughout the year, such as medical supplies or vision products, and submit receipts promptly.

Key takeaways

For many FSAs, December 31 is the deadline to use your funds or lose them.
Some plans offer a grace period or carryover option—check your employer’s policy.
Spend FSA dollars on eligible medical, childcare, and adoption-related expenses.
Save receipts and submit claims promptly for reimbursement.
Plan contributions for next year to avoid overfunding your FSA.

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Audrey Henderson

Audrey Henderson is a Chicagoland-based writer and researcher. She holds advanced degrees in sociology and law from Northwestern University. Her writing specialties are sustainable development in the built environment, policy related to arts and popular culture, socially and ecologically responsible travel, civic tech and personal finance.

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