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FSA rollover rules: Does an FSA roll over?

Generally speaking, flexible spending account (FSA) funds do not carry over to the next year. However, depending on your employer, you might be able to take advantage of a partial FSA rollover.

For 2020, you may have been able to carry over as much as $500 from your 2019 funds — but it wasn’t guaranteed. For 2021, the rollover limit has increased to $550. Your employer ultimately decides whether the partial rollover option is included in its employees’ flexible spending accounts, plus the maximum amount that can be carried over.

In place of a carryover option, an employer can choose to offer a 2 ½-month grace period to incur health expenses. The additional time frame usually runs from January 1 to March 15 of the following year.

Keep in mind that an employer is not obligated to include a rollover or grace period, and they can choose to offer neither option.

SEE RELATED: The difference between FSA and HSA

FSA carryover rules in 2020 and 2021

Since you don’t pay taxes on FSA money, you can save hundreds of dollars throughout the year. Funds can be spent on eligible vision products like prescription glasses and contact lenses, in addition to doctor’s appointment copays, medicines and other health products.

But with an FSA comes a little risk. A year’s worth of medical expenses can be tricky to estimate, so depositing too much money — or simply forgetting to spend it — can result in a big loss if you’re not careful.

Luckily, if you have a rollover or grace period, your money will have a little more wiggle room.

The maximum FSA contribution for 2020 and 2021 is $2,750 each year. If your employer offers the rollover option and you contribute the maximum amount, you’ll only need to spend $2,200 before the end of the year. The rest will carry over to 2021.

This can be a great reason to contribute at least $500 to your FSA if it offers the maximum rollover amount. Plus, some companies will even match some or all of employee contributions, possibly doubling what you have to spend. However, keep in mind that FSA funds will not transfer if you change jobs.

For better understanding of FSA rollover, here are three sample scenarios:

  1. Your employer’s plan allows for the full $550 rollover. During enrollment, you choose to deposit $1,500 in your FSA, but you only spend $1,300 on health expenses before the end of the year. Since the remaining $200 falls within the $550 allowance, all of it rolls over to the next year. In this scenario, you wouldn’t lose any money.

  2. Your employer allows for a $300 rollover. You deposit $1,000 but only spend $600 throughout the year. Of the remaining $400, only $300 can roll over. In this scenario, you would lose $100.

  3. Your employer opts out of an FSA rollover altogether. You deposit the full $2,750 but only spend $2,500 throughout the year. In this scenario, nothing carries over and you would lose $250.

READ MORE: More FSA and HSA resources

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