You signed up for a Flexible Spending Account (FSA) through your workplace. A Flexible Spending Account (sometimes called a Flexible Spending Arrangement) is a tax-advantaged savings account designed to help you pay for various medical expenses outside of your health insurance.
You accumulated a balance in your FSA last year, and you didn’t spend every single penny. So, can you still use that balance this year? Read ahead to find out.
The Restrictions of an FSA
Can you use last year’s balance this year? Technically, no. An FSA’s balance only lasts for a single year. It’s not supposed to roll over into the new year. If you don’t spend it all, that remainder is supposed to disappear.
This is one of the major differences between an FSA and a health savings account (HSA). An HSA is very similar to an FSA at first glance. They are both specialized savings accounts that are meant to help accountholders pay for qualified medical expenses and fill the gaps left in their healthcare plans. But an HSA’s balance doesn’t have a deadline once the year ends. Its balance can roll over and accumulate every single year.
Unfortunately, you can’t have an FSA and an HSA at the same time. You can only have one of these accounts.
The Exceptions with Your FSA Balance
Don’t panic about last year’s FSA balance just yet! You might be allowed to use that balance for just a little while longer.
Your employer has the ability to offer you a grace period to spend what you have left in your account. The Internal Revenue Service allows employers to give their employees a maximum of 2.5 months to spend last year’s FSA balance. So, you could have until mid-March to spend everything you have left.
Before you assume that you have this extra time, talk to your employer to see what their policy is on grace periods.
What Can Purchase with Your FSA?
If you have a grace period, and you’re wondering how to spend your remaining FSA balance, these are some of the qualified expenses you could purchase with it:
- Over-the-counter medications
- First aid kit supplies
- Menstrual products
- Prescription glasses
- Contact lenses
- Eye exams
- Dental treatments
- Products to quit smoking
Alternatives to Your FSA
What if you need to pay for a medical expense and you don’t have enough in your FSA? If the expense is urgent, you could turn to your emergency fund for help. As long as you have enough savings available, you can rely on this fund in this moment.
If you don’t have an emergency fund, you could try an alternative method for covering the expense. You could charge the expense to your credit card and pay down the balance later, or you could search for a direct lender of online loans and see whether you’re eligible to apply. If you’re eligible for an online loan, you can fill out an application and wait for the results. You just might get approved. In that case, you can use the funds from the online loan to pay for your urgent expense quickly. Then you can direct your energy toward a repayment plan.
If the expense isn’t urgent, could you wait until you have more savings available? For instance, could you push an eye exam to a later date when you can more easily afford it? Some careful planning could help you manage your out-of-pocket medical expenses without straining your finances.
Learn the limitations of your FSA as soon as possible. You’ll want to know if your savings are still on the table!