What I Didn't Know About Health Care FSAs Could Have Cost Me: Don't Make the Mistake I Almost Made

Although flexible spending accounts work on a use-it-or-lose-it basis, you may have options for unused funds at year's end. Just make sure you read the fine print before you enroll.

By Jeff Briskin

published 11 March 2026

in Features

Young male patient reading document while sitting on sofa in waiting room

I am currently covered by my wife's health care insurance, which is better than the plan my employer offers. However, her plan doesn't offer a health savings account (HSA).

Fortunately, my company has a flexible spending account (FSA) plan, which can be used to pay for most of the same expenses as an HSA.

In 2025, I signed up for an FSA for the first time. It was near the end of the enrollment deadline, and I elected a total plan-year pre-tax contribution amount of $1,000 without digging deeply into the details of the plan.

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Had my employer structured its FSA in a less generous way, my lack of due diligence could have cost me dearly.

HSAs vs FSAs — the differences matter

HSAs are available only for employees enrolled in a high-deductible health plan (HDHP). FSAs are generally offered to those in non-HDHPs.

Both plans enable employees to make pretax contributions that can be used to pay for out-of-pocket medical and dental expenses. Both accounts can generally be used to pay for chiropractic care, weight-loss programs and qualified prescription and over-the-counter medications.

But there are key differences. Once employees enroll in Medicare, they can no longer contribute to an HSA, but they can continue to make FSA contributions.

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HSA funds remain in the account until employees use them. They can take their HSA to another employer or move it into a special HSA with a brokerage company when they retire.

HSAs assets grow tax-free, and there are never any taxes on withdrawals if they're used to pay for qualified health care expenses.

FSA contributions, on the other hand, follow a use-it-or-lose-it rule. You elect to contribute a certain amount during a plan year. If you don't use the entire amount you contribute, you might end up forfeiting that balance.

In my situation, I had $400 left in my FSA at the end of 2025. When the new plan year started on January 1, any new claims could be paid for only by my 2026 plan-year contributions.

Understandably, I was worried that I would lose this leftover $400 and called my FSA provider to express my concern. This was a very useful call, since the plan representative patiently described the options some FSA plans can offer to help employees avoid losing their unused contributions.

Grace periods

Some FSAs allow employees a grace period of up to two and a half months to make new claims that are paid by previous year's contributions.

For example, for a plan year that technically ended on December 31, 2025, employees could continue to use their 2025 balances to pay for 2026-plan year claims until March 15, 2026.

'Run-out periods'

Many plans also offer a "run-out period" after the plan year ends. During this time frame, which generally lasts 90 days, employees can still file previous-year claims on remaining funds.

For example, for an FSA whose plan year ended on December 31, 2025, employees could file leftover claims for 2025 medical expenses against their remaining 2025 balance until March 31, 2026.

My plan doesn't offer a grace period. And its run-out period would be no use to me since I didn't have any additional 2025 medical expenses to claim.

FSA rollovers to the rescue

However, to my relief, my FSA plan allows me to roll over up to $660 in leftover 2025 contributions to my 2026 account after 90 days have passed.

I can tap these assets to pay only for 2026 plan-year expenses. And if I have combined 2025/2026 contributions left at the end of the year, I will be able to roll over only the 2026-adjusted maximum of $680 into my 2027 balance.

While all FSA plans can offer run-out periods, they can either offer grace periods or rollovers. They can't offer both.

Personally, I'll take the rollover option anytime.

Another misconception corrected

Until my call with the FSA plan representative, I always thought that I needed to have sufficient funds in my FSA to pay for any claims.

For example, in February, I wanted to use my FSA debit card to pay for a $200 dental bill, but as of the end of January, only $85 in pretax contributions had been deducted from my paycheck.

The representative assured me that I can start making claims up to my 2026 full-year FSA contribution of $1,000 even if the money isn't in the account yet.

That's because the FSA provider (and my employer) assume I'll continue to work there the entire FSA plan year. If I leave my company midyear with claims that are higher than my actual contributions, I will have to reimburse my employer out-of-pocket for this overage.

Conversely, if I leave with unused contributions remaining in my FSA account, I'll have to forfeit them.

That's fair. Unlike HSAs, contributing to an FSA can be a bit of a gamble. You have to calculate the risk of possibly losing what you've contributed if your health care costs are minimal during a plan year.

That's why you should avoid the mistake I made when I enrolled and carefully estimate what your qualified health care costs will be for the plan year — because you can't change your contribution amount when the enrollment period ends.

And it's important to know which provisions — if any — your employer allows to help you potentially avoid losing unused FSA funds.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jeff Briskin is the marketing director for a Boston-area financial planning firm and principal of Briskin Consulting, which provides strategic, digital and content marketing services to asset managers, wealth management firms, TAMPs, trust companies and fintech firms. Jeff has more than 25 years of financial marketing experience with some of America’s largest mutual fund companies, banks and wealth management firms.