A flexible spending account (FSA) is a benefit some companies offer so employees can efficiently manage their health care expenses. With it, you can save on certain out-of-pocket medical expenses.
However, unlike a health savings account (HSA), it is possible to forfeit the cash held in an FSA if you don’t use it by the end of the year or at least before your employer’s grace period ends.
Rather than let the funds go to waste, it’s important to take stock of any money in your FSA at the end of the year and make a plan to spend it before it expires, whether on doctors’ visits or by stocking up on medical supplies.
What Is an FSA?
An FSA is a tax-advantaged account designed to help employees save on their health care expenses. They are often appropriate for high deductible health care (HDHP) plans because account holders can use the funds to meet the deductible before coverage kicks in.
Typically offered as an employee benefit, these accounts let you deposit pretax dollars from your paycheck and use the balance to cover qualifying medical expenses throughout the year.
[Read: What to Do When Your Medical Bills Are Out of Control]
It’s important to note that an FSA is not the same as an HSA, which is a similar tax-advantaged health care account.
HSAs, or health savings accounts, have higher annual contribution limits compared to FSAs. The IRS stipulates that in 2025 you can contribute up to $4,300 to an HSA for self-only HDHP coverage and up to $8,550 for family HDHP coverage. For an FSA, though, employees can contribute up to $3,300 in 2025.
Most FSAs do not have a rollover feature, but HSAs do.
“Any unused funds in an HSA at the end of the year are not forfeited; they roll over and continue to accumulate, providing for long-term savings,” Michael Most, principal wealth manager at Savvy Advisors, said in an email.
What Can You Purchase With an FSA
Funds in an FSA account can be used for a wide range of health care expenses. For example you can spend the money on:
— Prescription drugs and many over-the-counter medications
— Copayments and deductibles
— Dental and orthodontic visits
— First aid items
— Medical devices, like wheelchairs, crutches and braces
— Hearing services and products
— Vision services and products
— Acupuncture, physical therapy and chiropractic care
— Necessary mental health care
— Addiction treatment
— Baby products, such as diapers, breast pumps and monitors
— Reproductive health products and fertility treatment
Because all of these products and services will be paid for out of an FSA with pretax dollars, they are discounted by the percent of income tax you would have paid.
[Read: 22 Legal Secrets to Help Reduce Your Taxes]
FSA Expiration and Grace Period
If your FSA is not eligible for a rollover, the funds in the account may expire if you don’t use them. For this reason, it’s important to carefully budget your deposits and make a plan to use what you save.
“Any funds remaining in FSAs at the end of the plan year (or grace period if offered by employer) may be forfeited, with some alternatives such as a carryover provision or a grace period,” Most said. That means that if you don’t use up the money you saved by the end of the year, you could lose it entirely.
For 2025, the IRS allows employees to carry over up to $660 of unused health FSA funds to the following plan year (if a carryover provision is allowed), which is 20% of the annual contribution limit of $3,300.
According to Lei Han, certified public accountant and associate professor of accounting at Niagara University, most employers offer a grace period of up to two and a half months to use the money in your FSA after the year ends. This grace period gives you a little extra time to spend down the funds so you don’t lose them.
Before you sign up for an FSA benefit or deposit any money into the account, be sure to ask your human resources department for specific details of your plan.
[Related:Medical Debt Will Now Be Wiped From Credit Reports]
Tips for Managing Your FSA
The potential forfeiture of FSA funds can complicate budgeting. You’ll need to determine the appropriate amount to save in these accounts before you start contributing, and then use the money prudently.
Most recommends aiming low to avoid making extraneous purchases just to use up leftover money at the end of the year.
“It’s better to be conservative and slightly underestimate your expenses rather than overestimate and risk losing a portion of your funds by the plan year’s end,” he said.
Han suggests using your previous year’s medical expenses to guide your spending in the new year. This approach can be especially useful for those with chronic medical conditions who regularly spend on medical supplies and procedures and can count on those costs coming up again in the future.
When leveraged correctly, an FSA can help you save on health care by allowing you to allocate pretax money towards those purchases. The key is to plan carefully so you can avoid losing any cash.
If you have lingering funds, review the list of items you can buy with the account and stock up on the things you need. This may be the perfect time to splurge on a pair of eyeglasses or replenish your first aid kit with everything from bandages to extra-large containers of ibuprofen.
More from U.S. News
What Happens to Your HSA in Retirement?
How to Use an HSA to Save for Retirement
HSA and Medicare: Using HSA To Pay for Medicare Premiums
Use Your FSA Balance Before it Expires originally appeared on usnews.com
Update 04/04/25: This story was published at an earlier date and has been updated with new information.
