If you contribute to a health flexible spending account (FSA), you benefit from using pretax dollars for medical expenses but the use-it-or-lose-it rule can put unused funds at risk. If your employer offers an FSA carryover, you may be able to keep part of your balance.
What Is the Use-It-or-Lose-It Rule?
A health FSA lets you use pretax dollars for eligible medical, dental, vision, and prescription expenses, but it is generally subject to a “use-it-or-lose-it” rule, unused funds at year-end are forfeited unless your employer offers a carryover option.
What Is a Carryover?
A carryover lets you move a portion of unused FSA funds into the next plan year, so you have more time to spend them on eligible expenses. Not all FSAs include this feature, and the rollover amount is capped by IRS rules. To see if your plan offers a carryover and how much you can roll, review your benefits portal or open enrollment materials, or contact your HR or benefits team.
How Much Can You Carry Over?
Each year the IRS sets a maximum FSA carryover amount, adjusted for inflation. For plan years beginning in 2026, the limit is $680, though your employer may choose a lower amount, check your plan documents to confirm. Rolled-over funds do not reduce your new-year contribution limit, so you could contribute up to $3,400 and still carry over up to $680 from the prior year.
What’s the Difference Between a Carryover and a Grace Period?
If your employer does not offer a carryover, they may offer a grace period instead, plans can only use one of these options. A carryover lets you move unused funds (up to the limit) into the next plan year, while a grace period gives you up to 2½ extra months after year-end to spend remaining dollars. Review your benefits materials to learn which feature your FSA includes.
Making the Most of Your FSA
As your plan year wraps up, take a moment to:
- Review your FSA balance and estimate upcoming eligible expenses.
- Spend any amount above the carryover limit before year-end to avoid unnecessary forfeiture.
- Confirm whether you must re-enroll in the FSA to receive a carryover, opting out may mean losing remaining funds.
If you are moving to a high deductible health plan and plan to open an health savings account (HSA), talk with HR before open enrollment. An FSA carryover can affect HSA eligibility, but options such as waiving the carryover or moving funds into a limited-purpose FSA (dental and vision only) may help you stay eligible.
Summary
FSA carryovers can significantly soften the use-it-or-lose-it rule but only if you know your plan’s rules and act before year-end. A bit of planning now can help you keep more of your money working for you next year. Download the bulletin for more details.
