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What to know about the Dec. 31 deadline


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As the calendar turns to a new year, you may be at risk for losing money if you have a flexible spending account.

Many FSA owners have a Dec. 31 use-it-or-lose-it deadline to use the funds they have set aside for the year.

The average forfeit of funds last year from an FSA was $300, according to Rachel Rouleau, chief compliance officer at FSA Store. Of course, some account holders lost even higher sums.

Flexible spending accounts are accounts that may be provided alongside an employer health plan and used to pay for eligible out-of-pocket medical costs. The money contributed to an FSA is not subject to federal income taxes.

In 2024, employees are able to put up to $3,200 in an FSA, up from $3,050 in 2023.

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Even for those account holders who may have had to forfeit several hundred dollars at the end of last year, the tax advantages still make the accounts worthwhile, according to Rouleau.

For example, if you set aside $2,000 in your FSA and save 30% on taxes, that amounts to $600.

“Even if you lose $300, you still made the right decision,” Rouleau said.

Ideally, every dollar set aside in an FSA should be used toward eligible health-care expenses.

The good news is “there are thousands of ways for people to avoid losing those pre-tax dollars,” Rouleau said.

If you’re unsure where to start, these three tips can help.

1.  Find out the rules for your unused FSA balance.

Your employer may not necessarily require you to use all of your FSA funds by Dec. 31.

“It’s important for the employee, if they have an FSA, and they’re running up against the deadline to know, do they have to use it before the deadline runs out?” said Lawrence Sprung, a certified financial planner and founder of Mitlin Financial in Hauppauge, New York.

You may have the option to carry over unused funds into the next year. Up to $610 may be carried over into 2024, per IRS rules. Funds above that amount may be lost.

Alternatively, your FSA plan may offer a grace period until March 15 to spend down your 2023 FSA funds.

Or you may have a runout period, or several months after the end of the last plan year to submit receipts for qualified expenses that were incurred in 2023.

To find out the specific rules that apply to your account, you may contact your FSA administrator, which typically lists their contact information on an FSA debit card. Your human resources department may also be able to provide that information.

2. Create a strategy to use your balance.

Though time may be running out, there are still plenty of ways to use your FSA money before the Dec. 31 deadline.

If you have a bigger balance, you may want to pursue bigger ticket items like eye exams, glasses and contact lenses or dental work, suggested Sprung, who is also the author of the book “Financial Planning Made Personal.”

It’s also a good time to pay for any outstanding medical bills that were incurred during the year, Rouleau noted.

The funds can also be used for routine care items such as over-the-counter medicines like pain relievers or allergy medicines, as well as sunscreen, acne care and other routine care products, she noted.

Purchases made on FSA Store’s website up until midnight on Dec. 31 may qualify toward your 2023 balance.

3. Start planning for next year’s FSA funds.

When working with families to plan for FSA spending, “the first year is the hardest,” Sprung said.

If you have not been keeping track of your out-of-pocket medical expenses, it can be tough to gauge, he said.

Sprung typically advises families to estimate how much they may spend, and perhaps cut that total back a bit.

In following years, once you have FSA receipts or card transactions, that may make it easier to estimate how much money you and your family may need, Sprung said.

If you’re carrying an FSA balance into 2024, it may be a sign you may want to contribute less when it comes time to elect your deferrals next year, he said.

“[If] you think that next year is going to be a similar year, then you certainly want to use that as a gauge and start cutting back,” Sprung said.

Keep in mind that life changes, such as the birth of children or a divorce, may also affect how much you need to set aside in your FSA, he said.

Importantly, flexible spending accounts are fully funded on the first day of the plan year. As such, you may plan to start using next year’s funds earlier to avoid running up against next year’s December deadline.

Keep in mind that if you leave your job at any point during the year, either voluntarily or involuntarily, you may lose access to your balance, unless you are allowed COBRA continuation for your FSA, Sprung noted. However, you may still have 60 to 90 days to submit receipts.

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