Every year, American workers forfeit money they already earned because of a deadline they did not know applied to them. Flexible Spending Accounts are use-it-or-lose-it by design, and the rules that soften that — carryover, grace period, run-out — vary by employer in ways that are genuinely confusing. Open enrollment season is the right time to sort this out, because the decisions you make now determine how much you risk losing next December.
The Core Rule
An FSA lets you set aside pre-tax dollars for eligible medical costs. For plan years beginning in 2026, the health FSA limit is $3,400, up from $3,300 in 2025. That cap is per person and per employer — if both spouses have an FSA at work, each can contribute the full amount.
The catch: unused funds at the end of the plan year are forfeited. That money returns to your employer. This is the single largest difference between an FSA and an HSA, where balances roll over indefinitely and belong to you permanently.
The Two Softeners — And You Only Get One
Employers may offer either a carryover or a grace period. Not both. Some offer neither. This is the detail most people get wrong.
| Carryover | Grace period | |
|---|---|---|
| What it does | Rolls unused funds into next year | Extends time to incur new expenses |
| Limit | Up to $680 for 2026 | No dollar cap |
| Time limit | None — spend anytime next year | Up to 2½ months (typically to March 15) |
| Anything above | Amounts over $680 forfeited | Entire remaining balance forfeited after |
The trade-off is real. If you finish the year with $1,000 left and your plan offers carryover, you keep $680 and lose $320. If your plan offers a grace period instead, you keep access to all $1,000 — but only until roughly mid-March, and only for newly incurred expenses.
Which is better depends on your situation. Carryover suits people with small leftover balances and no near-term medical needs. A grace period suits someone with a larger balance and a procedure they can schedule in January or February.
The Run-Out Period Is Something Else Entirely
A run-out period — typically 30 to 90 days after the plan year ends — lets you submit claims for expenses you already incurred during the plan year. It does not let you incur new ones.
This can be offered alongside either a carryover or a grace period. So a plan might give you until March 15 to spend and until March 30 to submit paperwork. Confusing these two deadlines is a common and expensive mistake.
Four Mistakes That Cost People Money
1. Assuming your plan has a carryover
The IRS permits carryover up to $680. Permits, not requires. Your employer's plan document has to affirmatively adopt it. If the document is silent, or offers a grace period instead, there is no carryover. Check your Summary Plan Description rather than assuming.
2. Sitting out open enrollment and expecting funds to follow
Some plans require active re-enrollment to receive carryover funds. If you skip open enrollment because you assumed your balance would transfer automatically, you may end up with no active account to receive it.
3. Carrying a general-purpose FSA into an HSA year
Even a small carried-over balance in a standard health FSA can disqualify you from contributing to an HSA. A Limited Purpose FSA — restricted to dental and vision — does not create this problem and can run alongside an HSA. If you are switching to a high-deductible plan, this matters a great deal.
4. Assuming dependent care FSAs work the same way
They do not. Dependent care FSAs do not permit carryover under IRS rules. Some plans offer a grace period, but there is no rollover option. Note that the dependent care limit rose to $7,500 for 2026, or $3,750 if married filing separately.
How to Pick Your Number
The most expensive mistake is electing a round number without doing arithmetic. Before you choose:
- ☐ Add up last year's actual out-of-pocket medical spending
- ☐ Include your deductible, copays, and prescriptions
- ☐ Add any procedure you know is coming — dental work, new glasses, a planned surgery
- ☐ Include routine eligible items you buy anyway: contact lens solution, sunscreen, allergy medicine, first aid supplies
- ☐ Elect slightly less than that total, not more
Underestimating costs you a little tax benefit. Overestimating costs you actual dollars. Given that asymmetry, the conservative election is usually right.
One Scheduling Tactic Worth Knowing
Your full annual election is available on day one of the plan year, even though contributions come out of your paycheck gradually. If you know you need an expensive procedure, scheduling it early in the year means you access the full amount before you have actually contributed it.
Note that this cuts both ways — if you leave the job mid-year having spent more than you contributed, you generally do not owe the difference back. That is a genuine feature of how FSAs are structured, though your access to remaining funds after leaving depends on your plan and whether COBRA continuation applies.
What Counts as an Eligible Expense
Broader than most people realize. Beyond copays and prescriptions, the eligible list includes menstrual products, sunscreen, first aid kits, allergy medication, reading glasses, contact lens supplies, and many over-the-counter items.
One quirk worth knowing: expenses must generally be incurred during the plan year. The main exception is orthodontics — you can use current-year FSA funds for braces even if they were put on before the plan year started.
Your Open Enrollment Checklist
- ☐ Find out whether your plan has carryover, a grace period, or neither
- ☐ Note the exact spending deadline and the separate claim submission deadline
- ☐ Confirm the carryover amount your employer actually allows — it can be lower than $680
- ☐ Check whether re-enrollment is required to keep carryover funds
- ☐ If you have or want an HSA, choose a Limited Purpose FSA instead
- ☐ Calculate your election from last year's real spending
- ☐ Put both deadlines in your calendar now, not in December
FAQ
How much can I carry over from 2026?
Up to $680, if your employer's plan offers carryover. Anything above that is forfeited. The limit is 20% of the annual contribution cap and rises with inflation.
Can I have both a carryover and a grace period?
No. IRS guidance is explicit that a plan adopting carryover may not also provide a grace period for health FSAs. Your employer chooses one, or neither.
Do HSA funds expire too?
No. HSA balances roll over indefinitely and remain yours even if you change jobs. That is why HSAs are called savings accounts and FSAs are called spending accounts.
Can I change my FSA election mid-year?
Generally no. Elections are locked for the plan year unless you have a qualifying life event such as marriage, divorce, birth of a child, or a change in employment status. Enrolling in an HSA does not count as a qualifying event.
Where does forfeited money go?
Back to your employer, who may use it to offset plan administrative costs or redistribute it among participants in the following year.
This article is general information and not tax, legal, or benefits advice. FSA rules vary significantly by employer plan design, and IRS limits change annually. Confirm your specific deadlines, carryover amount, and eligibility with your plan administrator or HR department, and consult IRS Publication 969 or a qualified tax professional for guidance on your situation.
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