FSA: Carryover or Grace Period?

11/24/2013

The IRS recently announced that participants of a health Flexible Spending Arrangement (FSA) can roll over up to $500 of unused contributions to the next plan year. Prior to this guidance, many FSAs implemented a grace period, which allows employees to spend any remaining money during the two and a half months following the plan year.

Now, employers have the ability to allow for a carryover or a grace period, but not both, or no option at all. Selecting which plan design is best for an FSA can be a difficult choice since both have its own advantages and drawbacks.

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