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Saving Money with the FSA Grace Period

Did you miss out on spending down your FSA last year?

Hold on, all might not be lost. FSAs and HRAs are “Use it or lose it” accounts, meaning if you do not spend the funds by the end of your plan year, the money disappears.

But did you know that some employers have a grace period for FSA and HRA spending? Federal tax regulations allow them to extend the time for incurring expenses by 2 and ½ months into the new year. The extension is optional (not all employers have to offer it), but if you do have the opportunity, it’s a great way to make sure you don’t lose any of the money you’ve already set aside for medical expenses.

How do I know if I have a grace period?
Talk to your HR Department or benefits administrator. Remember, the grace period must be a benefit they have established in advance–it’s not a last minute change they can just throw in!

What if I don’t have any funds left in last year’s FSA or HRA?
If you’ve already spent down your 2012 FSA or HRA, the grace period doesn’t affect you. You’ll just continue spending your 2013 funds as usual.

If I have expenses for services I got in 2013 during the grace period, how will the money be deducted?
Employers will apply the expenses to your 2012 balance first, and then your 2013 balance (assuming you also elected an FSA or HRA for the current year).

What if I have an HSA?
The grace period doesn’t apply to HSAs because money in these accounts always rolls over year to year, so there’s no deadline to spend it.

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