She Still Has $900 in Her FSA as Year-End Nears. Her Plan Could Let Her Spend Into March or Carry Some Forward

Quick Read

• Employers may choose either a grace period that runs until March 15 or a carryover of up to $680 for 2026, but federal rules do not allow both at the same time.

• If an employee has $900 left and the plan has a $680 carryover limit, $680 stays in the account and $220 is forfeited. Employers cannot return any of that money in cash.

• OTC medications, menstrual products, eyeglasses, hearing aids, and dental care can all qualify as FSA-eligible expenses before the deadline.

• Americans who work with a financial advisor have saved more than twice as much for retirement, on average. Find out what one could change for you: SmartAsset's free quiz matches you with up to three vetted fiduciary advisors in about five minutes. (Sponsor)

She still has $900 in her health flexible spending account late in the year, and the use-it-or-lose-it rule is on her mind. A health FSA is an employer-sponsored account that uses pre-tax payroll money to reimburse medical expenses. Many people assume any unused balance disappears on December 31, but federal rules let employers extend that deadline in one of two ways, and her plan may already do so.

How Unused FSA Money Can Carry Into the New Year

Health FSAs are generally treated as use-it-or-lose-it accounts, but IRS guidance allows an employer to add either a grace period or a carryover. A plan may include one option or the other, not both. A grace period can last as long as 2 1/2 months after the plan year ends, allowing new medical expenses during that window to be paid with money left from the prior year. For a calendar-year plan, that means the grace period ends on March 15.

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A carryover lets unused money roll into the next plan year, but only up to a cap. For plan years beginning in 2026, the IRS set the maximum carryover at $680, up from $660 in 2025. Employers may set a lower limit. A plan can use a carryover or a grace period, but not both. IRS Notice 2013-71, which established the carryover option, says a plan that includes a carryover is not allowed to also provide a grace period for health FSAs. Some plans offer neither, which leaves the December deadline in place.

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 is adjusted for inflation. The 2026 figures come from Revenue Procedure 2025-32, which the IRS issued with its other inflation updates for the 2026 tax year.

Run-Out Periods Follow a Different Schedule

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 submit claims for expenses that were already incurred in the prior plan year. It extends the filing deadline, not the deadline for receiving care. Each plan sets its own run-out length.

Who Can Use These Options and Who Cannot

She can use a carryover or grace period only if her employer included one in the plan. If her plan includes a carryover at the full 2026 cap, she would keep $680 and forfeit $220. Any amount above the carryover limit is lost, and that money cannot be paid back to her in cash.

Expenses That Can Help Drain the Balance Before the Deadline

1. Over-the-counter medicine and menstrual care products count as eligible expenses even without a prescription. That has been true for expenses incurred after December 31, 2019, and 26 U.S.C. § 106(f) treats menstrual products as medical care.

2. The IRS list of medical expenses includes eyeglasses, contact lenses, hearing aids, and dentures.

3. Doctor and dentist fees also qualify, including copays and dental work, as long as the plan covers them.

4. Scheduling an eye exam or dental appointment before the end of the year places the cost in the current plan year. An FSA cannot reimburse future or estimated expenses.

Setting Next Year's Election and the HSA Issue

The 2026 health FSA limit is $3,400. The 2027 limit applies to elections made this fall. A practical way to choose an amount is to total predictable costs, such as regular prescriptions, new glasses, and scheduled dental work.

A health savings account works differently, and 24/7 Wall St. explains HSAs in more detail elsewhere. This comes from Publication 969. Someone enrolled in a high-deductible health 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 money 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 to keep paying for employer coverage after leaving a job. If she is retiring, she can check whether her plan offers it and what it would cost.

One Plan Document Worth Reviewing Now

Her summary plan description should spell out 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 must spend her $900 by December 31 or has until March to use it.

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