Flexible Spending Accounts Get A Little Less Inflexible With Ability To Roll Money Over

Some 14 million American families participate in employer-sponsored flexible spending accounts that let you put pre-tax money into an account to be used on medical expenses that aren’t covered by insurance. But millions of consumers elect not to have an FSA because of the “use it or lose it” requirement that forfeits unused funds at the end of the year. So in an effort to get people participating, the IRS will be allowing companies to offer FSAs that let employees roll over up to $500 in unused funds into the next year.

“An overwhelming majority of feedback from individuals, employers, and others requested that the use-or-lose rule for health FSAs be modified,” reads a statement from the Treasury Dept. “Comments pointed to the difficulty for employees of predicting future needs for medical expenditures, the need to make FSAs accessible to employees of all income levels, and the desire to minimize incentives for unnecessary spending at the end of the year.”

The rule change puts an end to three decades of use-or-lose, at least for those employers who choose to end that requirement. Some plans currently offer grace periods that allow employees to continue spending that unused money for a short period of time after the end of the year. Grace plans will be allowed to continue, however employers who want to allow rollovers will not be allowed to have grace periods. It’s one or the other, says the IRS.

The Treasury Dept. says that some employer-sponsored plans may be able to allow the rollover for 2013, allowing employees to carry that money over into their 2014 accounts.