Her Flexible Spending Account Still Has $900 in It and the Year Is Almost Over. Her Plan May Let Her Carry Some Over or Keep Spending Into March

She has $900 left in her health flexible spending account in November, and she’s worried about the use-it-or-lose-it rule. A health FSA is an employer account that takes pre-tax money out of each paycheck and pays it back for medical costs. Many people assume any FSA money left on December 31 is gone, but federal rules let employers extend that deadline in one of two ways, and her plan may already offer one.

How Leftover FSA Money Can Survive Into the New Year

Health FSAs are generally “use-it-or-lose-it” plans, but IRS guidance lets an employer add either a grace period or a carryover. It also says a plan can offer either a grace period or a carryover. A grace period can last up to 2 1/2 months after the plan year ends. New medical expenses during that window get paid from last year’s leftover money. On a calendar-year plan, the grace period ends on March 15.

A carryover moves unused money into the next plan year, up to a cap. For plan years starting in 2026, the IRS set the top carryover at $680, up from $660 in 2025. Employers can pick a lower cap. A plan can offer one feature or the other, but not both. IRS Notice 2013-71, which created 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, and then the December deadline is the only one.

Where These Rules Come From

Health FSAs are part of cafeteria plans, which fall under 26 U.S.C. § 125. Section 125(i) caps how much employees can put in through salary reductions and raises, and that cap increases with inflation. The 2026 figures come from Revenue Procedure 2025-32, which the IRS released along with its other tax year 2026 inflation adjustments.

Run-Out Periods Work on a Different Clock

People often mix up a run-out period with a grace period, but a grace period gives more time to rack up new expenses. A run-out period only gives more time to send in claims for expenses from the year that already ended. It extends claim filing, not the time to receive care. Each plan sets its own run-out length.

Who Can Use These Options and Who Can’t

She can use a carryover or grace period only if her employer wrote one into the plan, so suppose her plan has a carryover at the full 2026 cap. She’d keep $680 and lose $220, because anything above the carryover amount is forfeited. You can’t get the cash back. Her employer can’t refund any part of the balance.

Expenses That Can Use Up a Balance Before the Deadline

1. Over-the-counter medicine and menstrual care products count as covered expenses whether or not prescribed. That’s 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 count too, so copays and dental work qualify, as long as the plan covers them.
4. Booking an eye exam or dental visit before December 31 puts the cost in this plan year. An FSA can’t reimburse future or projected expenses.

Sizing Next Year’s Election and the HSA Question

The 2026 health FSA limit is $3,400. The 2027 limit applies to elections made this fall. A common way to pick an amount is to add up costs that are easy to predict, like regular prescriptions, new glasses, and scheduled dental work.

A health savings account (HSA) works differently, and 24/7 Wall St. covers HSAs in more detail elsewhere. This comes from Publication 969. Someone on a high-deductible plan who also has a regular health FSA generally can’t contribute to an HSA, a rule based on 26 U.S.C. § 223(c)(1). A limited-purpose FSA, which covers things like dental and vision, is the exception. For 2026, HSA limits are $4,400 for self-only coverage and $8,750 for family coverage.

What Retirement Does to the Balance

FSA money only pays for expenses incurred during the coverage period, so leaving a job usually cuts off new claims. Treasury’s COBRA rules count health FSAs as group health plans. And 26 CFR 54.4980B-2 lets many FSAs limit COBRA to the end of the plan year when the job ends. COBRA is the federal option to keep paying for employer coverage after leaving. If she’s retiring, she can check whether her plan offers it and what it costs.

One Plan Document Worth Pulling This Week

Her summary plan description lays out whether the plan has a carryover, a grace period, or neither. The document also lists the carryover cap and the run-out deadline. Those details tell her whether she must spend her $900 by December 31 or can wait until March.

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