The clock is ticking for Flexible Spending Account (FSA) holders to use their funds before the year-end deadline or potentially forfeit them.
At a Glance
- The FSA spending deadline impacts 70% of account holders.
- In 2022, about half of FSA holders forfeited an average of $441.
- FSAs offer pre-tax savings on healthcare, but are viewed as complicated by users.
- Strategic planning can help avoid losing unused funds.
Understanding the FSA Deadline
The December 31 deadline looms over Flexible Spending Accounts, which affects approximately 70% of account holders. This deadline can result in a rush to spend remaining balances as the “use it or lose it” principle applies, leading many to forfeit funds. In 2022, the average amount left on the table was $441 per person.
FSAs are designed to help employees pay for healthcare expenses with pre-tax earnings, offering a significant financial benefit. However, managing these accounts can seem daunting due to the complexity of the rules and deadlines. As the year-end approaches, careful assessment of eligible expenses is crucial.
Thanks to @ShakeriaHawkins, #CatTorres, and @KTNV for featuring @FSAstore in this segment about maximize #FSA and #HSA funds. Watch and learn how to avoid losing funds to the 12/31 deadline: https://t.co/GuEfo11Uq7
— FSAstore.com (@FSAstore) December 10, 2024
Planning Ahead with Strategic Communication
Employers play a critical role in helping employees maximize their FSA benefits. Effective communication and simplified rules can guide employees in understanding their accounts better. HR teams can facilitate this process by providing clear and timely updates through emails and newsletters. Highlighting eligible expenses such as medical co-pays, prescriptions, and over-the-counter items is essential.
“Make sure you understand the clock and the rules” – David Feinberg of Justworks
HR efforts should focus on making FSA balances and eligibility information easily accessible. This can be achieved through online portals or direct communication. It’s equally important to ensure clarity regarding policies like partial rollovers, grace periods, and claims run-out periods to make year-end planning more manageable.
Kona HR Reminder 💡
Use your FSA funds before the year ends—it's "use it or lose it!" Check your balance and make those last-minute purchases to maximize your benefits and avoid losing money. Don't wait! 💰✔️ #EmployeeBenefits #FSA #YearEndReminder pic.twitter.com/HyqxQpyorx
— Kona HR (@kona_hr) September 23, 2024
Maximize Benefits, Avoid Forfeitures
Understanding the specific provisions such as carryover and grace period options can maximize FSA benefits. A carryover of up to $640 is possible, but this option removes the eligibility for a grace period. Alternatively, a grace period can extend the spending window until March 15, providing additional time to incur expenses without losing funds.
Even with extensions like grace periods or claims run-out periods, the necessity to eventually use the funds remains, and failure to do so results in forfeiture. Constructive year-end planning can help individuals not only optimize these accounts but also enhance their overall financial well-being.
Sources
1. Essential year-end tips for maximizing Flexible Spending Accounts
2. For some FSA dollars, it’s use it or lose it at year’s end
