Daniel Stewart

Do FSAs Have a Grace Period?

Flexible spending accounts (FSAs) are a unique way to cover medical expenses. They're only available through your employer. You can fund the account with pretax dollars, and many companies match contributions to maximize how much employees can spend on qualified medical expenses.

Unlike health savings plans (HSAs), FSAs don't roll over into the next year. There are a few exceptions, but it's mostly a "use it or lose it" situation.

Fortunately, many employers offer a grace period. Grace periods enable you to spend unused FSA contributions. But how does it work, and how long do you have?

Understanding FSA Grace Periods

Not all FSAs will have a grace period. Whether yours does depends on your employer. Companies sponsoring FSAs for employees decide whether they offer a grace period.

The standard timeline for an FSA is 12 months. You can contribute to your FSA and spend its funds over 12 months. After that, you lose anything remaining.

With a grace period, your employer effectively extends the plan duration. Instead of 12 months, it may turn into 14.5 months.

The grace period starts at the beginning of the new year. Any claims for reimbursement apply to what's left of the previous year's funds before dipping into the new year's FSA contributions. The exception is if you use an FSA debit card. In that case, using the card will pull from the current year's FSA.

How Long Does the FSA Grace Period Last? If your employer offers a grace period, it lasts for 2.5 months. That means you can spend your FSA funds between January 1st to March 15th of the next year.

It's important to note that FSAs can't have a grace period with a carryover provision. If your employer chooses the carryover option, a specific amount of leftover funds will move into the next year. For 2023, that figure is $610. FSA plans can't have both, so employers must offer one or the other.

There are benefits to grace periods and carryovers. Because grace periods are time-limited and not money-limited, many companies opt for the former to give employees plenty of time to use what they contribute.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at savings investments blog.