An FSA is a "use-it-or-lose-it" plan, which means if you don't spend all the funds in the account before the end of the year, you lose that money. So, what happens if it's December and you still have a lot of money left in your FSA account? Can you stock up on FSA eligible products to make sure that you don't lose those funds?
The answer is no. But, there are still some options that can help you avoid this situation, so let's take a look at how you can take advantage of all your FSA benefits before year's end, while doing so within the guidelines of your FSA.
What does "stockpiling" mean with an FSA?
While the term hasn't been fully defined, IRS officials have commented that stockpiling eligible items under your FSA means that you buy more items than you're able to use before the end of the plan year.
Buying any more than three of the same item could be considered "stockpiling." By the very nature of FSAs, any product you buy should be to fill a need for you, your spouse, or a qualified dependent. Because of this, the IRS doesn't let you stock up on FSA eligible products with pre-tax funds, and your administrator can usually figure out that you're stockpiling by analyzing how many items you bought towards the end of the year.
Let's say it's December 1st and you still have $600 left in your FSA. You realize that you're running out of nasal spray, so you decide to buy 25 packs of your favorite saline solution, so you can stock up for the rest of the year and into the next, and use up the remaining balance in your FSA. The problem is that unless you're somehow going to use all that saline solution in the next 30 days, your FSA administrator may flag that purchase as stockpiling.
If you stock up at the end of the year, your FSA administrator is probably going to send you an alert to inform you that this kind of spending isn't allowed and that those purchases wouldn't be eligible for reimbursement.
Take advantage of rollover and grace period options
The best way to avoid stockpiling is to spend down your FSA balance before you get to the month of December when the mad scramble to use your benefits tends to hit the hardest.
But if you find that you can't quite pull that off, it's important to know that some FSA plans allow you to carry over up to $570 of unused funds into the next calendar year. If your plan doesn't offer that rollover option, it may offer a grace period of two-and-a-half months at the end of the plan year.
This grace period carries over the remaining balance in your FSA into mid-March of the next calendar year for those running on a calendar year plan, which gives you more time to spend that money before you lose it. At the beginning of the plan year, make sure you ask your FSA administrator whether your plan offers a rollover or a grace period option so you can plan your spending well in advance.