New Rules for (Some) Flexible Spending Accounts

I heard that employers can now let people roll over $500 in their medical flexible spending accounts to the next year, rather than lose it all at the end of the year. Do all plans let you do this?

No. FSA plans aren’t all required to let you roll over the $500, but many are changing their rules to permit the transfer starting this year.

The “use-it-or-lose-it” rule of flexible spending accounts was one of the biggest downsides to saving in these plans – if you didn’t use all of the money you set aside for eligible medical expenses by the end of the year, you’d lose it. Some plans added a grace period to let you use the money by March 15 of the following year, but anything remaining in the plan at that time would disappear.

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But the U.S. Treasury Department changed the rules in 2013, permitting employers to amend their plans and allow employees to roll over up to $500 in the account from one year to the next. Employers aren’t required to make the change, and only 28% of the employers surveyed by Visa and WageWorks (which administers FSAs for employers) changed their rules to permit the rollover in 2013. Many employers opted instead to keep the March 15 grace period for the year, because a company can’t offer both the rollover and the grace period at the same time. But more employers plan to make the change this year – the Visa/WageWorks survey found that 53% of employers plan to offer an FSA with a carryover in 2014.

This is a good time of year to ask your employer about its rules for rollovers; if your employer hasn’t made the change, you still have plenty of time to use the money in the account. You can use FSA money tax-free for your deductible, co-payments, and medical and prescription drug expenses that aren’t covered by insurance--a good thing to keep in mind as you take your child to doctor and dentist appointments before school starts.

And you can use FSA money tax-free for a number of other summertime expenses, including prescription sunglasses, certain kinds of sunscreen, eligible anti-itch cream (for poison ivy and insect bites), first aid kits, and allergy and sinus medicine. You can also use the money for eyeglasses, contact lenses and lens solution, as well as frequently overlooked expenses such as prenatal vitamins, breast pumps, hot and cold packs, knee and ankle braces, thermometers, blood pressure monitors, vaporizers, heating pads and bandages, says Jeremy Miller, founder and CEO of FSA Store, which sells FSA-eligible items.