Navigating New Rules for Flexible Spending Accounts
If your employer lets you carry over $500 from last year, it can no longer offer the March 15 grace period. But many firms are waiting to switch.
I read in your column a few months ago that some people can now carry over $500 from their flexible-spending accounts after the deadline for spending the money. Do I still have to use up last year’s money in my account by March 15?
That’s up to your employer. The Treasury Department and IRS changed the rules last fall, and employers can now allow their employees to carry over up to $500 in their FSA from one year to the next. Under the old rules, you lost any money left in the account after the deadline on December 31 -- or March 15, for plans that offer a grace period. Employers can’t offer both the $500 rollover and the March 15 grace period, so if your employer does change to the new rules, you will lose the option of carrying over your entire unused balance until March 15. But you will be able to carry over up to $500 into the next plan year without losing it if you don’t spend it by December 31.
But employers aren’t required to make the change, and some are waiting to switch to the new rules. That means you may still have until March 15 to use the 2013 money. In a survey of FSA administrators by FSAstore.com, an online store stocked with FSA-eligible products, 51% say that the employers they work with are leaning toward adopting the carryover option, but 64% believe most employers will wait until later in 2014 to amend their FSA plans. Ask your employer if you still have until March 15 to use FSA money this year, and find out whether the company plans to switch to the $500 carryover without the grace period for next year.
If your employer does still offer the March 15 grace period, this can be your last opportunity to take advantage of a sweet spot for FSAs. During the first two and a half months of the year, you can use any money remaining in your account from 2013 -- and you can use all of the money you signed up to contribute for 2014, too, even though you haven’t made all the contributions yet. That makes it a good time to consider some big-ticket medical expenses that aren’t covered by insurance, such as lasik surgery or orthodontia. It can also be a good time to visit the eye doctor, dentist, chiropractor or acupuncturist.
You also have plenty of smaller ways to clean out your 2013 balance by March 15 : You can use the money for insurance deductibles, co-payments, and medical and prescription drug expenses that aren’t covered by insurance (but not for over-the-counter drugs without a prescription). You can also use the money for eyeglasses, prescription sunglasses, contact lenses and lens solution. FSAstore.com also points out some frequently overlooked expenses that qualify for FSA payouts: prenatal vitamins, breast pumps, hot and cold packs, knee and ankle braces, thermometers, blood pressure monitors, vaporizers, heating pads, pregnancy test kits, bandages, first-aid kits, and even some sunscreens. You can also get acne medicine, antacids and allergy medicine with a doctor’s prescription. For more ideas, see Smart Uses for Your Flex-Account Money.