If your employer offers health care flexible spending accounts, new rules could make using the money even more flexible.
Officially known as flexible spending arrangements, FSAs let you set aside some of your pay, pretax, to cover out-of-pocket health costs. Roughly two-thirds of employers offer them, according to a report from the Society for Human Resource Management.
It used to be that an unspent balance in an FSA had to be forfeited at the end of the year. Even though many employers allowed an additional grace period of two and a half months, the risk of losing the funds made some people wary of using the accounts.
Late last year, however, the federal government changed the rules, giving employers the option to allow as much as $500 to be carried over in an FSA from one year to the next. That means you do not have to worry about losing the money if it is not all spent before the end of the year; no more rushing out to buy a new pair of eyeglasses that you don't really need. Employers must choose between offering the carry-over option or a grace period to their workers — they cannot offer both.
Here are some additional questions about flexible spending accounts:
What if I have more than $500 remaining in my FSA at the end of the year?
You may not carry over more than $500; unspent balances over that amount will still be forfeited. And keep in mind that your employer can choose to set a carry-over limit below the $500 maximum.
Does the carry-over rule affect FSA contribution limits?
No. The annual maximum is currently $2,500.
Does the carry-over option apply to other types of flexible spending accounts, like those for child care or other dependent care costs?
No. It applies to health care FSAs only.