Flex-Ed: Staying ahead of your year-end FSA deadlines
You had the best intentions when you put money into your flexible spending account (FSA). But as the calendar winds down (and don't be afraid, but November is already here!) the holidays can disrupt your to-do list, and that money could easily go to waste. Luckily, there's still plenty of time to make smart year-end FSA spending decisions. We'll cover how to make the most of your money — while avoiding IRS scrutiny.
Know these key dates
When it comes to maximizing your FSA, knowledge is power. Start by asking your plan administrator for details about your key FSA deadlines (and know the difference between them!). These may include:
- Rollover - If your company offers a rollover, you'll have an opportunity to keep $500 in your account from the previous year.
- Grace period - Some employers offer up to 2½ extra months after the annual deadline to use your FSA money. If the annual deadline is December 31, a grace period extends your deadline to March 15.
- Run-out period - This is your deadline to submit receipts from the previous year. Most companies offer a 90-day run-off period after the deadline. If your plan's deadline is December 31, you'll have until March 31 to be reimbursed.
Before crafting your FSA spending plan, it's critical to know these deadlines. Your company could offer a rollover, grace period, or hard deadline on December 31. Once you know your plan's deadlines, set more than one reminder to avoid surprises.
Where can you spend your FSA money?
If you're taxing your brain, it may be worth revisiting what you purchased over the past year. Now is the perfect time to reimburse yourself for an FSA-eligible expense you may have missed.
Taking inventory of the past couple years of spending may also jog your memory. Are you overdue for an eye exam? Have you been putting off a specialist visit? Did you skip your annual trip to the dermatologist? Time slips away faster than you may expect. You may be able to use your extra FSA money on basic necessities.
If you're still feeling nervous, our foolproof list of FSA-eligible products and services has you covered.
Resist the urge to stockpile
We've said it before, but it's worth mentioning again - try not to "stockpile" FSA-eligible products. There's no hard and fast rule about this, but being too frivolous with these funds can trigger some unwanted IRS attention.
Look, we get it. Things happen — the holidays creep in and before you know it, you're up against the FSA spending deadline. While it may be tempting to splurge on a lifetime supply of gauze, experts urge against it.
If you're trying to follow the rules — and you should be — FSA purchases should cover your current needs. This means things you need through the end of the year. Does that mean your administrator will show up to inspect your bottle of nasal spray? Probably not.
But buying three bottles in December could trigger a red flag. If that happens, it's possible your administrator won't reimburse you. Then you're stuck with too much nasal spray and you spent money unnecessarily.
If your plan offers a rollover or grace period, it may be easier to avoid the temptation to stockpile. Plus, you'll have extra time to plan for the medical expenses you actually need.
Be smart with year-end FSA spending
One of the best things about your FSA is spending pre-tax money on medical necessities. But if you're not careful, you may have to surrender the unused funds. Unless you're flush with cash, returning FSA money to your employer at the end of the year is less than ideal.
The good news is you can use this year's missteps to plan for next year's FSA spending. Planning ahead may help you avoid the same trouble next December.
New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center.