What to do if you’ve overallocated an FSA

When you signed up for an FSA with your employer, did you expect that you'd need more money in your FSA than you actually ended up using? Are you wondering what to do with extra FSA money?

Some FSA accounts have a carryover option which allows you to roll over up to $610 to the next year (for plans ending in 2023 - increases to $640 for plans ending in 2024). Some FSA plans (check with your employer) also allow a grace period of 2.5 months, during which you can use your remaining FSA money or incur new expenses (but an employer can't offer a carryover and grace period at the same time). If you have money remaining in your FSA and your plan year will soon end, here are some ways you can make good use of that money without letting it go to waste.

Planning ahead with your FSA

First, it's important to explain what an FSA is, and why you have to plan ahead – but also why plans don't always work out. For example, you might find extra FSA funds in your account which are no longer needed for the original plan. Read below for some ways to keep that money from going to waste.

Understanding FSAs

The IRS created FSAs (Flexible Spending Accounts) so you can set aside a certain amount of income, before it's taxed for federal income or employment taxes, to spend on qualified medical expenses. Through an FSA you're able to buy everyday medical items and also get access to medical services. Once you pay these expenses, they can be reimbursed through the FSA.

What is eligible under an FSA is governed by IRS regulations, specifically IRS Code 213(d) which defines medical care. While employers cannot be inclusive beyond 213(d) when it comes to eligibility, they can be more stringent. Some employers might even contribute additional funds into your FSA, to encourage employee participation. Be sure to check with your employer to understand the details of your FSA plan.

Things to avoid if you think you've overallocated your FSA

When you've decided to enroll in an FSA with your employer, you have to determine how much money you'll allocate. For 2024, the IRS allows a maximum contribution of $3,200 per person. Consider all of these factors (again, check with your employer's specific FSA rules first) and if you're worried about wasting additional FSA funds, consider these eligible items:

Eyeglasses

You can get a new pair of prescription eyeglasses, prescription sunglasses, contact lenses, and reading glasses. It's important to emphasize that these items must be prescribed by an eye doctor. Fortunately, eye exams are also qualified for FSA reimbursement. You can buy back-up pairs of glasses or contacts as well, and they also qualify.

Shop for glasses with an FSA

OTC Drugs and Products

If you regularly use common household Over-the-Counter (OTC) drugs and products for your medical condition's treatment, prevention, mitigation, etc. then these purchases are eligible for FSA reimbursement. If you regularly use a supply of NSAIDs, pain relievers, etc. you can replenish these with FSA funds. Generic brands and name brands are both acceptable for FSA reimbursement. “Stockpiling" isn't allowed, however; you must only purchase an amount of product that would reasonably use within the plan year.

Dental Care

If you're due for a dental cleaning, now's the time to schedule it. Teeth cleanings are eligible for FSA reimbursement. If you've got other dental work that you've been considering, you can also get FSA reimbursement for X-rays, fillings, braces and orthodontics, extractions, dentures, bonding and sealants, and crowns.

Chiropractic Appointments

Chiropractic appointments are reimbursable with FSA funds. If you've been postponing a treatment for sore muscles, back pain, etc. then consider using your FSA funds for a chiropractic session.

Mental health, therapy, and counseling appointments prescribed for a physical or mental illness

If a doctor has determined that you have a mental or physical illness that would be alleviated by, or prevented by mental health treatments (psychotherapy, psychoanalysis, sex therapy, bereavement and grief counseling) then you can schedule an appointment and have the costs reimbursed by your FSA.

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