If you walk into a retail pharmacy chain, you may be convinced that you have to spend every dollar you put into your Flexible Spending Account (FSA) before Jan. 1. But those “helpful” signs could be flat-out wrong.
FSAs were “use it or lose it” until recently. Now, in a typical year, employers can allow workers to roll over as much as $550 to the next year or spend it during a two-and-a-half-month grace period at the beginning of the next calendar year.
You were allowed to set aside up to $2,750 in your FSA in 2021. Still, American workers forfeit hundreds of millions of dollars per year in unused FSA funds, according to CNBC.
Congress changed the rules for 2020 and 2021, so you may be able to ignore those store signs imploring you to spend, spend and spend — right now.
You may be able to roll your entire FSA balance into 2022. Check with your human resources department or benefits administrator and ask if your employer is participating.
“Signs in the stores say, ‘Hey! Spend your FSA money before the year is out. Buy this. Buy that. Buy the other.’ And it’s almost like throwing the money away so you don’t lose the money you’ve put aside,” money expert Clark Howard says.
“In the past, yeah, you had to spend it all by the end of the year but not anymore at most employers. Money from ’21 can be spent up to a point in ’22. Just check your employer rules.”
Of course, it’s totally OK to spend your FSA money. These are pre-tax dollars you’ve set aside specifically to spend on qualified medical purchases such as doctor’s bills, co-pays, prescriptions, over-the-counter medications and more.
But especially this year, depending on your company’s rules, you shouldn’t feel forced to spend every last dollar before New Year’s Day.
