“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.” – T.T. Munger
Oh-oh! The FSA deadline is looming, and knowing when and how to use your funds is key to safeguarding your financial and health care benefits. Our sharp, no-nonsense guide offers critical dates and strategies, helping you to spend wisely and avoid the common pitfall of forfeited FSA dollars. Get ready to tackle the deadline with confidence!
Key Takeaways
- Properly managing FSA deadlines, including rollover provisions, grace periods, and run-out periods, is essential to avoid losing unspent FSA funds and maximizing their benefits.
- FSA funds should be strategically spent on eligible medical expenses before the end of the plan year, and users should remain informed about what qualifies as eligible expenses to ensure compliance and avoid penalties.
- Employers may offer a choice between a carryover option or a grace period, but not both, and it’s important for individuals to understand how unused FSA funds are handled or forfeited post-deadline and explore any possible exceptions to recover funds.
Understanding the FSA Deadline: Why Timing is Everything
How much of a difference can timing make? When it comes to FSAs, the difference can be substantial. The end of the FSA year marks a standard deadline for using FSA funds, and unspent funds are typically forfeited unless other provisions, such as a rollover of up to $610 or a grace period extending until March 15 of the following year, are in place. Hence, a proper grasp and management of FSA deadlines can prevent you from losing your hard-earned funds, underscoring the pivotal role of timing.
The time limit is not set in stone for all FSA plans. Some offer a runout period, allowing employees to submit receipts for expenses incurred in the previous year. This provision gives additional time beyond the plan whose run out period expires each year to claim FSA funds. Grasping these various timelines and options paves the way to get the most out of your FSA benefits and smoothly navigate the deadlines.
The Final Countdown: Key Dates for Your FSA
Successfully maneuvering FSA deadlines hinges on your awareness of the key dates. For instance, the grace period typically extends up to March 15 of the new year, providing additional time to use up the remaining FSA balance. But the grace period is not the final cut-off. For plans with a run-out period, the deadline for submitting claims for reimbursement is extended typically until March 31 [1].
Bear in mind that these dates might vary according to your employer’s plan, with possible temporary extensions to the FSA grace period in exceptional circumstances. The crux of the matter is to keep abreast of your specific FSA plan and its deadlines, thereby ensuring optimal utilization of your unused FSA funds.
Navigating the Grace Period: How to Use Remaining FSA Funds
How much does the grace period matter? The answer is: A lot. It constitutes a significant difference-maker since it extends the plan year by an additional 2.5 months, giving you until March 15 of the new year to use the prior year’s remaining funds, which are the previous year’s FSA funds. Great news, right? It is, especially if you have unused FSA money at the end of the current plan year.
But what’s the strategic approach to using these remaining funds? Consider:
- Purchasing eligible over-the-counter medications or medical equipment
- Scheduling larger expenses like dental and vision care before the end of the grace period
- However, be mindful of how your FSA debit card works during this period: claims are automatically prioritized to deduct from the prior year’s remaining funds before the current year’s funds [2].
The Ins and Outs of Incurring Eligible Expenses Before the Deadline
With a clear understanding of the FSA deadlines now in hand, your subsequent step should be to make sure you incur eligible expenses before the deadline hits. The IRS dictates that FSA funds must be used for qualified medical expenses as detailed in IRS Publication 502.
Indeed, rules do exist, yet they may not be as complicated as you perceive them to be. For instance, certain FSA purchases, like alternative treatments like acupuncture, may require a letter of medical necessity or a doctor’s prescription to be eligible. At The Institute of Financial Wellness, we advise you to touch base with your employer and FSA administrator for guidance on qualified medical expenses and on any other additional requirements.
Quick Guide to Qualified Medical Expenses
So, which expenditures count as medical expenses under the FSA? The list is vast. Expenses eligible for FSA reimbursement include costs for:
- diagnosing
- curing
- mitigating
- treating
- preventing disease
- expenses for treatments affecting any part or function of the body.
This means your health FSA can cover a variety of medical products and services. Over-the-counter medications with a prescription, birth control pills, and breast pumps are eligible for FSA reimbursement. Eye exams, eyeglasses, contact lenses, eye surgery, fertility enhancement procedures, hearing aids, and guide dog expenses for the disabled are covered medical services under the FSA.
Even transportation to and from medical care and costs for inpatient treatment at alcohol or drug addiction centers, including meals and lodging, are considered eligible medical expenses as well as qualified medical expenses. These eligible medical expenses can add up over time, making it essential to keep track of them for tax purposes [3].
Using Your FSA Debit Card Wisely as the Deadline Approaches
Did you know that your FSA debit card is more than a mere payment tool? Yes, in fact, it’s a strategic instrument that simplifies the process of utilizing your FSA funds. You can use it for direct payments to medical providers or for purchasing medically necessary items at authorized merchants.
However, the convenience of an FSA debit card comes with a responsibility. You should keep detailed receipts and documentation for all medical expenses paid with it, as these documents will substantiate the eligibility of the expenses in case of an audit. Using the FSA debit card for ineligible expenses could result in penalties, and you may be required to reimburse the FSA for those costs.
Thus, exercising vigilance in your FSA debit card usage is paramount, particularly as the FSA deadline nears.
Strategies to Avoid Forfeiting Unused FSA Funds
At The IFW, we always recommend our clients use their flexible spending account (FSA) funds by the end of the year to avoid losing free money. Last year, individuals who participated in FSA plans, on average, let go of around $300 each. This doesn’t have to be your story. By taking some smart steps, you can ensure not a single dollar of your FSA money is wasted.
To do so, make sure you exhaust your FSA funds by purchasing approved medical items and arranging necessary healthcare visits before December 31st rolls around. Be mindful about overbuying more than you’ll actually need for the rest of the calendar year, though. If it looks like there will be surplus FSA funds as the deadline approaches, consider reducing next year’s contributions accordingly.
Don’t hesitate to take proactive measures early on because unless alternative options like carryovers exist through one’s employer, the standard policy is very much a “use it or lose” scenario when it comes to these accounts’ funds.
Planning Ahead: Estimating Next Year’s Health Care Costs
So, is there anything you can do as a strategy to prevent leftover funds? Yes! You can gauge your healthcare costs for the ensuing year. This estimation should consider your personal or family’s medical needs, including:
- upcoming medical procedures
- prescription medications
- regular check-ups
- dental work
- vision care
- preventive screenings
Life-changing events such as starting a family or experiencing a divorce can also influence how much you should contribute to your FSA. To make an informed decision about your FSA contributions for the upcoming year, consider using online FSA calculators. These calculators take into account your historical healthcare spending and anticipated changes, providing you with a comprehensive view of your likely healthcare expenses.
Stay Informed: Consult with Your FSA Administrator or HR Representative
Apart from everything we’ve covered so far, it is also vital to keep abreast of the details regarding your FSA plan. Touch base with your employer or an HR representative to verify if a grace period is part of your FSA plan and when exactly you need to use any funds left over.
Your employer typically sends out notifications for employees who have residual FSA funds, providing advice on optimal ways to spend that balance prior to its expiration date. It’s imperative to make good use of these funds as the option for carrying them over or having a grace period depends solely upon the discretion of your employer.
The Carryover Provision vs. Grace Period: What’s Best for You?
As you manage your FSA, a crucial decision to make is the choice between the carryover provision and the grace period. The carryover provision allows employees to roll over up to $500 (or $610 for the year 2023) of their unused FSA funds to the following year, giving them the entire upcoming plan year to utilize these funds [4].
On the other hand, the grace period, typically extending up to March 15 of the new year, provides a time limit to incur expenses for eligible expenses, including prior year expenses. The best option for you depends on your pattern of incurring healthcare expenses and your comfort with end-of-year spending, and a financial advisor can help you decide the route to take.
Assessing Your Needs: Carryover Funds or Grace Period Flexibility?
To choose between the carryover provision and the grace period, you need to assess your needs and preferences. The carryover option might be more suitable for those who prefer the security of rolling over funds without the pressure of a specific spending deadline early in the year.
Conversely, the grace period may be more beneficial for individuals who incur medical expenses early in the year and need extra time to spend their previous year’s funds. Remember, employers have the discretion to offer either a rollover or a grace period, but they cannot offer both options.
The Aftermath of Missing the FSA Deadline: What Happens Next?
So, what transpires if you miss the FSA deadline and are left with unused funds? These funds can be used in a few different ways:
- Employers can use the funds to offset administrative costs incurred or reduce premiums for the following year’s FSA.
- The funds can be distributed among employees enrolling in the next year’s plan.
- The funds can be used to offset the financial risks assumed by offering FSAs.
Keep in mind that your FSA administrator can provide specific guidelines on how forfeited funds are used within your specific plan. Grasping these guidelines is crucial to maximizing your FSA benefits.
Can You Recoup Lost Dollars? Exploring Possible Exceptions
If you’ve missed the FSA deadline, all is not lost. There might be some exceptions that could allow you to recoup some of your lost dollars. For instance, you may have the option to submit claims for expenses incurred before the deadline but not yet submitted.
Some FSA plans may provide a run-out period or a retroactive claims period, allowing expenses incurred before the deadline to be submitted after it. Certain life-changing events, such as childbirth or marriage, can grant you special enrollment rights, which might extend to modifying FSA contributions.
Also, in cases of employment termination, you might be allowed a grace period to submit FSA claims for eligible expenses incurred while the account was active. Retroactive claims may be allowed for expenses that were eligible and incurred before the deadline but were not claimed due to extenuating circumstances.
Empower Your Financial Journey with the Institute of Financial Wellness: Your Comprehensive Guide to Clarity, Confidence, and Custom-tailored Solutions
As you steer through your financial journey, having the appropriate resources and support is indispensable. This is where the Institute of Financial Wellness (IFW) comes in. IFW is the most comprehensive multimedia network for financial education, resources, and services. Our mission is to help people live their best lives by providing engaging, informative, and objective financial education content, including guidance on dealing with the Internal Revenue Service.
With IFW, you get:
- Clarity and confidence to help you make informed financial decisions
- Access to the IFW Network of Financial Professionals for everything financial
- Full implementation of effective, custom-tailored solutions for your unique needs
- Ongoing guidance and support to ensure maximum financial success through every stage of life
IFW provides a delightful and specific journey to help you ‘Get There’.
Full Summary
Maximizing your FSA isn’t rocket science. It’s all about understanding the deadlines, incurring eligible expenses before the deadline, and employing strategies to avoid forfeiting unused funds. Whether it’s the carryover provision or the grace period, choosing the best option depends on your needs and preferences. Remember, it’s essential to stay informed and consult with your FSA administrator or HR representative.
Your financial journey doesn’t end here. With resources like the Institute of Financial Wellness, you can continue to navigate your financial landscape confidently. After all, your financial wellness isn’t just about today; it’s about securing your future.
Frequently Asked Questions
What is the deadline for FSA reimbursement in 2023?
The deadline for FSA reimbursement in 2023 is December 31st. After incurring the expenses, submit and substantiate them by March 31, 2024.
How late can you submit an FSA claim?
It’s important to verify the cutoff date for your FSA grace period with your Human Resources department, given that its duration may differ. It has the potential to extend up to two and a half months.
What happens if you miss your FSA deadline?
If you miss your FSA deadline, you will lose the unused balance unless you use it within the grace period. Therefore, it’s important to be mindful of the deadline and plan your expenses accordingly.
What is the grace period for FSA?
Participants have the opportunity to utilize their FSA by incurring eligible expenses during a grace period of up to 2 and a half months, which extends through March 15 of the subsequent plan year.
What is a run-out period in an FSA plan?
An FSA plan’s run-out period grants employees additional time to file claims for reimbursement using FSA funds by submitting receipts for expenses that were incurred during the previous year.
Scott Rosen is the Executive Vice-President and Research Champion of the IFW. Scott is a 30-year veteran of the financial services industry.
