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After 30 years, the Treasury Department is losing its “use it or lose it” policy regarding health flexible spending accounts.
“To make health FSAs more consumer-friendly and provide added flexibility, the updated guidance permits employers to allow plan participants to carry over up to $500 of their unused health FSA balances remaining at the end of a plan year,” a Treasury press release says. Some employers may be able to adopt carry-overs for plan year 2013.
If you’re not familiar with FSAs, they’re accounts some employers offer where you can deposit pretax money from your paycheck to pay for certain eligible expenses. The most popular kind is for health care. Until now, though, you’ve had to spend all the money in that account by the end of the year, or forfeit it.
“An estimated 14 million American families use the accounts, though only about 20 percent of those whose employers provide the benefit take advantage of it,” USA Today says. That number may now rise because people won’t have to worry about accurately planning health expenses or throwing away their money.
Be careful, though: The cap is $500, and there’s nothing that says employers have to let even that much roll over for the following year. They may instead allow a grace period of 2½ months into the following year, which is an option employers already have. Or they may offer no extensions at all.
“A health FSA cannot have both a carry-over and a grace period: It can have one or the other or neither,” the Treasury Department says.
Do you use an FSA? Are you excited about this change? Comment below or let us know on our Facebook page.