Hi everyone,
Now that we are officially at the start of the new year we wanted to make sure we were bringing two features to the forefront of your mind as far as your Flexible Spending Accounts are concerned. This time of year employees are able to take advantage of one of two types of FSA closing periods that may be available to them. The first being an FSA Grace Period and the second being a FSA Run Out Period.
Both possible features are critical to understanding as both allow employees to keep using their funds OR will allow them to spend their remaining funds from the prior year at this time.
So without further adieu, and a little help from Microsoft’s Copilot, let’s dive in!
Understand Flexible Spending Account Grace Periods and Run-Out Periods
Flexible Spending Accounts (FSAs) are a great way to save on medical expenses by using pre-tax dollars. We’ve discussed these a good amount in the past. If you’re looking for the basics of an FSA, check out this blog we wrote a few months ago!
Now that we have ensured you are well versed on the basics of an FSA we can take a deeper look at the two specific plan features that most people will fall under, and discuss the nuances of each that allow for an individual to use their funds AFTER the plan year ends! Pretty amazing right?
What is an FSA Grace Period?
A grace period is an extended timeframe at the end of your FSA plan year that allows you to use any remaining funds. Typically, this period lasts for 2.5 months after the plan year ends. For example, if your plan year ends on December 31, you would have until March 15 of the following year to incur eligible expenses using the remaining funds in your FSA.
During the grace period, you can continue to use your FSA funds for new eligible expenses. However, any money left unspent at the end of the grace period is forfeited due to the “use-it-or-lose-it” rule.
What is an FSA Run-Out Period?
A run-out period is a designated timeframe after the end of the plan year during which you can submit claims for expenses incurred during the previous plan year. This period usually lasts for 90 days. For instance, if your plan year ends on December 31, you would have until March 31 of the following year to submit receipts for reimbursement if this is how your plan was set up.
Unlike the grace period, the run-out period does not allow you to incur new expenses; it only gives you extra time to file claims for expenses that occurred during the previous plan year.
As with all things benefits, the run-out period is optional and determined by your employer, so it’s essential to verify the specifics with your FSA administrator
Key Differences Between Grace Periods and Run Out Periods
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Grace Period: Allows you to incur new eligible expenses for an additional timeframe AFTER the plan year ends.
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Run-Out Period: Provides extra time (usually 90 days) to submit claims for expenses incurred DURING the previous plan year.
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Both options are optional and depend on your employer’s FSA plan design.
Maximizing Your FSA Benefits
To make the most of your FSA, it’s crucial to keep track of your expenses and deadlines. Here are a few tips:
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Plan Ahead: Estimate your medical expenses for the year to avoid over-contributing to your FSA.
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Monitor Your Balance: Regularly check your FSA balance to ensure you’re on track to use all your funds.
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Know Your Deadlines: Be aware of your plan’s grace period and run-out period deadlines to avoid forfeiting any funds.
By understanding and utilizing the grace period and run-out period options, you can maximize the benefits of your FSA and ensure you don’t lose any of your hard-earned money that you have set aside pre-tax.
It’s important to note that not all employers offer a grace period OR run-out period, and those that do can modify them to fit their employee base so please be sure and check with your FSA administrator or HR department to see how your plan is setup.
We hope that this article is helpful and that at least a few people out there learned some ways to potentially NOT lose money from their FSA.
As always, if you’d like to learn more about these items or just want to talk benefits in general, these local Dallas folks would LOVE to talk to you. Thanks for the read!!!
Ryan