Flex Spending Accounts Just Got More Flexible

Anna Williams

flexible spending accountThe Treasury Department announced last week that it is now allowing Flexible Spending Accounts to be, well, a little more flexible: You’ll now be permitted to roll over up to $500 of unspent money in your FSA into the next year.

FSAs are employer-sponsored accounts that allow users to sock away money, pre-tax, into an account designated for health expenses that aren’t typically covered by your health plan. Because of the tax incentives, using money from an FSA means you may save up to 40% on those pesky out-of-pocket medical expenses (like prescription drugs, glasses, and co-pays).

Up until now, FSAs were governed by a strict “use it or lose it” rule. Just like the way you can’t carry over unused minutes month to month on your cell phone plan, the funds in FSAs were forfeited if they weren’t used by the end of the year. But it’s hard to predict medical expenses, and employers complained that this rule often only encouraged those with unspent funds to spend on not-so-necessary expenses at the end of the year—just to use up the account.

The Treasury Department apparently heeded complaints from participants: As early as this year, employers can now allow FSA participants to roll over their funds. (Note that employers aren’t now required to allow a rollover, but are simply now permitted to offer one.) And although $500 is the limit for the rollover, the Treasury notes that most forfeited accounts tallied up to less than that amount anyway.

RELATED: Avoid These 4 Critical Open-Enrollment Mistakes

Whether your account will roll over or not, autumn is always a good time to check the balance on your FSA as the end of the year approaches. For more must-knows about getting the most out of your health care plan, check out our open enrollment to-do list.

  • cpaynter

    Yes, well, it’s a moot point for many. That’s because unfortunately, the Affordable Care Act (aka Obamacare) contained a provision which limits the maximum FSA contribution amount to $2,500 per year. My family blows through that much by June, thus there is no chance of ever having anything to roll over. So this ruling from Treasury is relatively meaningless now.

    Thus the main impact of the “affordable” care act to me is an additional $750 in taxes per year, with no benefit.