Use It or Lose It? Not So Fast – Flexible Spending Accounts

Be aware of recent changes in the use-it-or-lose-it rule for flexible spending accounts (FSAs).

Generally, if there is a balance in a health care FSA at the end of the year, the funds are forfeited by the FSA participant. Due to a recent change, the IRS authorized employers to grant a grace period of up to 2 1/2 moths.

Now the IRS says an employer can permit participants to carry over up to $500 to the next year. But there’s a catch: You can’t use this carryover provision if the grace period is allowed, or vice versa.