What is an FSA "run-out" period?


During the early part of the Flexible Spending Account (FSA) plan year, you will hear plenty of terms being thrown around like "grace period" or "rollover," but one term that is constantly misunderstood is the FSA "run-out" period. This is a standard account feature that is built into the structure of most flexible spending accounts (FSAs), but it can often be confused with the FSA grace period because it is so similar. So what's the deal with the FSA "run-out" period? Let's find out.

"Run-Out" Periods

An FSA "run-out" period refers to the period of time in the new plan year during which account holders can file claims for expenses incurred during the previous plan year. This timeframe is chosen by the employer, not the IRS, and can last for any period of time, but the most common FSA "run-out" period is 90 days. For instance, if your FSA plan year ends on December 31 and you have a 90 day run out period, you would have until March 31 of the following year to submit claims for reimbursement.

What is the difference between the FSA grace and "run-out" periods?

A common source of confusion for FSA users is the difference between the FSA grace period and "run-out" period. Unlike the "run-out" period, the grace period is an option chosen by the employer, which gives FSA users 2.5 months after the end of the plan year to spend their remaining FSA funds.

The key difference is that with a grace period, new products/services can be purchased with prior funds into the new plan year, but with the run-out period, only expenses that were incurred during the prior plan year are eligible in the near year. FSAs can offer both the grace period and run-out, neither, one or the other, or even another option in which remaining funds up to $500 rollover to the following year, but this is left up to the FSA plan sponsor to choose. Always check with your FSA plan sponsor to find out which rules apply to your plan!

Looking ahead to March deadlines

With all of that confusion out of the way, March is poised to be a pivotal month for FSA users. If you have the FSA grace period and your FSA plan year ended December 31, 2016, you have until March 15, 2017 to make purchases with 2016 funds, while those with the 90 day "run-out" period have until March 31, 2017 to file claims for expenses incurred during 2016.

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