Employee Benefits

What Happens to Your FSA If You're Laid Off

You usually have to spend money in your flexible spending account before you lose your job.

I've been contributing $200 per month to my health-care flexible spending account, but it looks as though I might get laid off soon. Could I spend the full $2,400 that I had planned to contribute for the year, or just the $600 that I've contributed so far?

There's good news and bad news about FSA contributions. On the bright side, you can use the full $2,400 for eligible medical expenses at any time -- even if you lose your job before the year is over. "An employer cannot ask for the money back in most cases, unless the plan is written in a certain way, which is highly unusual," says Jody Dietel, chief compliance officer for WageWorks, which administers FSAs for many large employers. Ask your employer about the rules before you spend the extra money.

But you usually have to spend the money before you lose your job, or else you lose the remaining cash in the account. If you think that your job may be in jeopardy, this could be a good time to visit the dentist, eye doctor and pharmacist and to buy an extra pair of eyeglasses. You can submit the paperwork even after you lose your job, as long as you incurred the expenses before your termination. "There's typically a claims run-out period that gives you some extra time to submit eligible claims for reimbursement," says Kelly Traw, of Mercer, a health-benefits consulting firm.

There may be a way, however, to buy yourself some extra time to use the cash in the account. Some employers give you until the end of the month to use the money, or you might be able to sign up to extend your FSA benefits under COBRA - the same federal law that lets employees keep group health insurance for up to 18 months after they leave their jobs. Most companies with 20 or more employees are required to offer COBRA coverage, which also applies to money in flexible spending accounts. You don't have to use COBRA for health insurance to have COBRA coverage for your flex plan; they're separate from one another.

To keep your FSA open, you would continue making the same monthly contribution plus a 2% charge. So if you signed up to contribute $200 every month while working, you'll contribute $204 per month to keep COBRA coverage for your flexible spending account. For most health-care FSAs, COBRA is offered only if your year-to-date contributions exceed your year-to-date claims when you leave your job, says Dietel. Then you can pay for COBRA for just a month or two while you use the FSA money for health-care costs (the contributions are after-tax when you're no longer an employee; they were made pretax while you were still employed).

You can use the FSA money for eyeglasses, contact lenses, prescription drugs and many nonprescription medications, dental care, and a lot of other medical expenses that insurance doesn't cover. For more information about uses for the money in your flex account, see 25 Ways to Spend Your Flex Account.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
November 16, 2021
The Case Against Owning All Dividend-Paying Stocks in Retirement
investing

The Case Against Owning All Dividend-Paying Stocks in Retirement

Income investors are often all about dividends, but that may not be a smart strategy for retirees. Here’s why, and what investment model they should c…
November 8, 2021

Recommended

Best Black Friday Deals at Costco
Costco

Best Black Friday Deals at Costco

The venerated warehouse chain unleashes holiday bargains in hopes you’ll also snap up Costco’s Kirkland Signature house-brand line of goods as well.
November 23, 2021
28 Great Black Friday Deals and Doorbusters for 2021
Smart Buying

28 Great Black Friday Deals and Doorbusters for 2021

We’ve rounded up dozens of bargains from top retailers including Amazon, Costco and Walmart, but you’ll need to act fast; many of the more popular ite…
November 17, 2021
How to Talk About Money With Your Children
Brandon Copeland

How to Talk About Money With Your Children

Atlanta Falcons linebacker and Kiplinger contributing editor Brandon Copeland discusses how to engage with children on spending, investing and other m…
November 6, 2021
How Do I Spend My Bitcoin? (And Where?)
cryptocurrency

How Do I Spend My Bitcoin? (And Where?)

You can invest in Bitcoin, but seeing as it's a digital currency, you can spend it, too – at a rapidly growing number of businesses. Here's how.
November 5, 2021