How Much FSA Rolls Over From Year to Year?

Managing Flexible Spending Account (FSA) funds at the end of a plan year requires understanding specific rules regarding unused balances. This article focuses on rollover provisions for the 2024 and 2025 plan years. It provides insights into the options available to employers and how these impact participants, helping individuals make informed decisions about their healthcare spending.

Flexible Spending Accounts (FSAs) Overview

A Flexible Spending Account (FSA) serves as an employer-sponsored benefit, allowing employees to set aside pre-tax money for eligible healthcare or dependent care expenses. This arrangement reduces an individual’s taxable income, providing a financial advantage for covering out-of-pocket costs. Funds contributed to an FSA can be used for a wide array of qualified medical, dental, or vision expenses, including deductibles, co-payments, and prescriptions. For dependent care, FSAs cover costs related to childcare or elder care, enabling individuals to work.

FSA Rollover Feature

The FSA rollover feature offers a mechanism for carrying over a portion of unused funds from one plan year into the next. This provides flexibility for participants, mitigating the traditional “use-it-or-lose-it” rule that historically governed these accounts. Offering a rollover is entirely at the discretion of the employer, as not all FSA plans include this provision. Its primary purpose is to reduce the risk of forfeiture for employees who do not spend their entire elected amount within the plan year.

The 2024 and 2025 Rollover Limits and Rules

For health FSAs, the Internal Revenue Service (IRS) sets a maximum amount that can be rolled over annually. For plan years beginning in 2024, the maximum carryover amount for unused health FSA funds is $640. For plan years beginning in 2025, the maximum carryover amount increases to $660.

This rollover feature applies exclusively to health FSAs; dependent care FSAs are not eligible for this carryover provision. While the IRS establishes the maximum limit, employers have the discretion to implement a lower rollover limit for their specific plans. Any funds exceeding the employer-defined or IRS-mandated maximum rollover amount are subject to forfeiture. Additionally, any funds rolled over do not count against the participant’s contribution limit for the new plan year, allowing them to elect the full annual amount in addition to the carried-over balance.

Grace Period Option

As an alternative to the rollover feature, some employers may offer a grace period for their FSA plans. A grace period provides an extended timeframe, typically up to two and a half months into the new plan year, during which participants can use their prior year’s FSA funds.

Employers generally offer either a rollover option or a grace period, but not both. The grace period differs from a rollover because it is an extension of the spending deadline, allowing new expenses to be incurred against the previous year’s balance within that window. In contrast, a rollover simply moves a specific unused amount into the new year’s balance, which can then be used at any point.

Checking Your Plan’s Policy

The availability of either a rollover or a grace period, and the specific limits that apply, are determined by each individual employer’s FSA plan design. Individuals should consult their human resources department, the FSA plan administrator, or review their benefit enrollment documents. These resources will provide precise details on whether their plan includes a rollover or a grace period, the applicable maximum amounts, and any specific deadlines for using or rolling over funds.