The end of the year is fast approaching, and for those with Flexible Spending Accounts (FSAs), it's time to start thinking about your 2024 funds and whether you can roll them over into 2025. Understanding FSA rollover rules is crucial to avoid losing hard-earned money. This guide breaks down everything you need to know about FSA rollovers from 2024 to 2025.
What is an FSA Rollover?
A Flexible Spending Account (FSA) allows you to set aside pre-tax money from your paycheck to pay for eligible healthcare or dependent care expenses. The key difference between a Health FSA and a Dependent Care FSA lies in the eligible expenses. A Health FSA covers medical expenses not reimbursed by insurance, while a Dependent Care FSA covers childcare costs to allow you to work or look for work.
A rollover typically refers to the ability to carry over unused funds from one plan year to the next. However, the rules surrounding FSA rollovers are quite strict, and the options available depend largely on the type of FSA you have and your employer's plan.
Health FSA Rollover Rules for 2024-2025
The rules surrounding Health FSA rollovers are generally stricter than those for Dependent Care FSAs. For most Health FSAs, there is no rollover option. This means that any money remaining in your account at the end of 2024 will likely be forfeited. Your employer will need to inform you of their policy, as some employers may offer a limited grace period (generally 2.5 months) to use remaining funds, or a small rollover ($580 maximum in 2024) to cover medical expenses incurred in the early months of the new year. This allowance is a provision under IRS rules; however, the employer is not obligated to offer it.
Key Takeaway: Unless your employer explicitly offers a grace period or a limited rollover option, you must use all of your 2024 Health FSA funds before the end of the plan year.
Strategies to Maximize Your Health FSA
Since rollover options are limited, consider these strategies to avoid losing money:
- Accurate budgeting: Carefully estimate your healthcare expenses for the year. Overestimating can lead to wasted funds.
- Mid-year adjustments: Check your spending midway through the year and adjust your contributions accordingly if needed.
- Increased use of eligible expenses: Explore all eligible expenses under your plan to maximize the use of funds.
Dependent Care FSA Rollover Rules for 2024-2025
The rules for Dependent Care FSAs are more lenient than those for Health FSAs. Dependent Care FSAs generally do not allow for a rollover either; however, some employers may offer a limited rollover for a small amount or a grace period. Check with your employer to determine their specific policy for rollover allowances.
Key Takeaway: Although more flexible than Health FSAs, Dependent Care FSAs usually don't allow for a significant rollover. Careful planning is essential to avoid forfeiting your funds.
Strategies to Maximize Your Dependent Care FSA
Similar strategies apply to maximizing the usage of your Dependent Care FSA funds as with Health FSAs:
- Detailed budgeting: Accurately project childcare expenses.
- Mid-year review: Monitor your spending and make adjustments to your contributions if needed.
- Confirm eligible expenses: Verify that all your childcare expenses are eligible under your plan.
Understanding Your Employer's Plan
The most critical step in managing your FSA is understanding your employer's specific plan. Your employer's policy document outlines the details of your FSA plan, including the rules for rollovers, grace periods, and any applicable limitations. This document will have your definitive answer regarding your options.
Always consult your employer's FSA plan documents or your HR department for the most accurate and up-to-date information. This information may vary based on your employer and plan specifics.
Conclusion
While the ability to roll over FSA funds from 2024 to 2025 is limited, careful planning and an understanding of your employer's specific policy are crucial to maximizing your FSA benefits and avoiding the loss of funds. Remember to review your plan documents and consult your HR department for detailed information specific to your situation. Proactive planning ensures you get the most out of your FSA.
