What Happens to Unused FSA Money: Grace Period vs. Carryover Rules
Money left in a health FSA when the plan year ends is forfeited unless your employer allows a carryover or a grace period. The IRS ceilings are $3,400 to contribute and $680 to roll over in 2026.
Money left in a health flexible spending account when the plan year ends is forfeited, unless your employer's plan lets you keep some of it. That is the whole "use it or lose it" rule, and the exceptions are narrower than most people assume.
For 2026 the IRS caps health FSA salary reductions at $3,400. A plan that permits carryover can let you roll no more than $680 into the next year, according to Revenue Procedure 2025-32, which sets this year's inflation adjustments in section 4.15. Those are federal ceilings. Whether your plan uses the carryover at all is your employer's decision.
What happens if you don't use all your FSA money?
Nothing dramatic. No fee, no letter. The unspent balance simply goes back to the plan. The benefits administrator WEX says FSA funds must be spent within the plan year, with unused amounts forfeited, and that the rule covers medical and dependent care accounts alike. A Motley Fool explainer from November 2025 is blunter: you have to spend the money in the account in the year that you contribute to it.
Run a quick illustration. Elect $2,000 at open enrollment, spend $1,700, and the last $300 is the part at risk. Not a catastrophe, but it is a 15% haircut on money that already left your paycheck before taxes.
Can FSA funds roll over to the next year?
Sometimes, and the answer depends on which of two escape hatches your employer picked. A carryover moves a capped amount of unspent money into the next plan year. A grace period gives you extra time after the year ends to incur new expenses against the old balance.
| Feature | Carryover | Grace period |
|---|---|---|
| What it does | Moves unspent money into the next plan year | Extends the time to spend the old balance |
| Ceiling | $680 for 2026 (IRS) | Up to 2½ months after the plan year ends (WEX) |
| Who decides | Your employer | Your employer |
"An employer can choose to offer either a grace period or a carryover, but not both. Sometimes, an employer may pick neither."
WEX, on FSA use-or-lose rules
That last sentence is the one to underline. Plenty of workers assume a rollover exists because a coworker mentioned one at a previous job. Another old page still lists a $550 carryover, a figure that no longer matches the IRS's $680 or the "up to $660" the Fool cites for 2025. Stale numbers circulate; the plan document governs.
How much should I put in an FSA?
The rule shapes the election more than the account's tax break does. Count only the costs you can already name: prescriptions you refill on a schedule, contact lenses, a dental treatment you've been postponing. Then check the plan type. With a carryover, a modest overshoot is cushioned by up to $680. With a grace period, the cushion is time: on a calendar-year plan, 2½ months after Dec. 31 runs to roughly mid-March. With neither, the safest election is the one you're sure to spend by Dec. 31.
Dependent care accounts are subject to the same use-or-lose rule, according to WEX, so the daycare or after-school bills you plan to pay from one deserve the same arithmetic. A mid-year change, such as a child aging out of care, is the sort of event that can leave a balance stranded.
What is a run-out period, and is it a second chance?
No. A run-out period is the window after the plan year in which you can submit claims for expenses you already incurred. WEX draws the line plainly: unlike a grace period, nothing new can be incurred. Buying glasses in January with last year's money needs a grace period or carryover. Filing a December receipt in February only needs the run-out window.
Does an HSA have a use-it-or-lose-it rule?
It does not. Health savings accounts carry balances forward every year, which is the main reason people who qualify for one treat it as a different animal. The tradeoff is eligibility: an HSA is tied to a qualifying high-deductible health plan, while an FSA is offered through the employer's cafeteria plan.
If you are also sorting through a retirement benefit this season, the same read-the-plan-document habit pays off there. We have walked through how a 401(k) true-up works and how cliff and graded vesting change what your match is worth.
So before you pick a number in the enrollment portal, find the line in your summary plan description that says grace period, carryover or neither. Everything else about how much to elect follows from it, and the cheapest mistake to avoid is the one made at the keyboard in November rather than at the pharmacy counter in December.
