Her FSA Still Holds $900 as Year-End Nears. The Plan Could Let Her Roll Over Part of It or Spend Into March

Many people think unused flexible spending account money disappears on December 31, but federal rules give some account holders a way to preserve funds they expected to lose.

She has $900 left in her health flexible spending account and is concerned about the use-it-or-lose-it rule. A health FSA is an employer-sponsored account that sets aside pre-tax pay for medical expenses. Although many people assume any balance remaining at year-end is forfeited, federal rules allow employers to extend the deadline in one of two ways, and her plan may already include one.

How Unused FSA Funds Can Carry Into the Next Year

Health FSAs are usually treated as use-it-or-lose-it plans, but IRS guidance allows an employer to offer either a grace period or a carryover. A grace period can last as long as 2 1/2 months after the plan year ends. Medical expenses incurred during that window can still be paid from the prior year’s remaining balance. For a calendar-year plan, that means the grace period runs until March 15.

A carryover, by contrast, lets unused money move into the next plan year, up to a limit. For plan years beginning in 2026, the IRS set the maximum carryover at $680, up from $660 for 2025. Employers may choose a lower amount. A plan can provide one feature or the other, but not both. IRS Notice 2013-71, which introduced the carryover option, says a plan with a carryover “is not permitted to also provide a grace period with respect to health FSAs.” Some plans offer neither, leaving December as the final deadline.

Where the Rules Come From

Health FSAs are part of cafeteria plans governed by 26 U.S.C. § 125. Section 125(i) limits how much employees can contribute through salary reductions, and that limit rises with inflation. The 2026 figures come from Revenue Procedure 2025-32, which the IRS issued with its other tax-year inflation adjustments.

Run-Out Periods Follow a Separate Timeline

People often confuse a run-out period with a grace period. A grace period gives extra time to incur new expenses, while a run-out period only gives extra time to file claims for expenses already incurred in the prior year. It extends the claim-submission deadline, not the time to receive care. Each plan sets its own run-out length.

Who Qualifies for These Choices

She can use a carryover or grace period only if her employer included it in the plan. If her plan allows a full 2026 carryover, she would keep $680 and lose $220, since anything above the cap is forfeited. The money cannot be returned as cash, and the employer cannot refund the unused balance.

Ways to Spend Down the Balance Before the Deadline

1. Over-the-counter medicine and menstrual care products are covered even without a prescription. That has been true for expenses incurred after December 31, 2019, and 26 U.S.C. § 106(f) classifies menstrual products as medical care.
2. The IRS list of eligible medical expenses includes eyeglasses, contact lenses, hearing aids, and dentures.
3. Doctor and dentist charges also qualify, including copays and dental work, as long as the plan covers them.
4. Scheduling an eye exam or dental appointment before year-end puts the cost in the current plan year. An FSA cannot reimburse future or estimated expenses.

Planning Next Year’s Election and the HSA Issue

The health FSA limit for 2026 is $3,400. The 2027 limit applies to elections made this fall. A practical way to choose an amount is to total expenses that are easy to forecast, such as routine prescriptions, new glasses, and planned dental work.

A health savings account works differently, and Publication 969 explains the details. Someone enrolled in a high-deductible plan who also has a regular health FSA generally cannot contribute to an HSA, based on 26 U.S.C. § 223(c)(1). A limited-purpose FSA, which covers dental and vision expenses, is the exception. For 2026, HSA limits are $4,400 for self-only coverage and $8,750 for family coverage.

What Happens If She Retires

FSA funds can only pay for expenses incurred during the coverage period, so leaving a job usually stops new claims. Treasury COBRA rules treat health FSAs as group health plans. And 26 CFR 54.4980B-2 allows many FSAs to limit COBRA coverage to the end of the plan year when employment ends. COBRA is the federal option for continuing employer coverage after a job change. If she is retiring, she can check whether her plan offers COBRA and what it would cost.

One Document to Review This Week

Her summary plan description will state whether the plan includes a carryover, a grace period, or neither. It should also list the carryover cap and the run-out deadline. Those details determine whether she needs to spend the $900 by year-end or can wait until March.