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Benefits 101: What Happens to FSA and HSA Accounts at the End of the Year?

HSAs and FSAs are helpful benefits, but the rules around unused funds can be tricky. Here's what you need to know.

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Flexible savings accounts (FSAs) and health savings accounts (HSAs) are a great way for your employees to make the most out of pre-tax dollars, but many may not be familiar with the rules surrounding any money that’s left over in the accounts at the end of the year.  

If you’re an HR executive, you’ve likely fielded numerous questions from your employees about what happens to unused funds in these accounts — after all, no one wants to leave money on the table. 

While HSAs and FSAs share many traits (which we’ve written about here), they differ when it comes to determining what happens to unused funds at the end of the year. Here’s what your employees need to know: 

Unused funds in HSA accounts

HSA elections are fairly straightforward — if you have any money left in your HSA account at the end of the year, it will automatically roll over into the following year (and the next, and the next). That’s good news if you didn’t spend as much as you planned. And while you can’t get the money back, you can adjust your contribution for the following year based on how much will be rolling over. For example, you may choose to elect less if you expect to have a significant amount rolling over. 

Unused funds in FSA accounts

With FSA elections, things aren’t quite so simple. There are three basic types of FSA accounts. How unused FSA funds are treated at the end of the year is determined by the account type. Make sure your employees are aware of their specific account type so they can plan how they’ll use extra funds at the end of the year. FSA plans generally fall into three categories: 

  • Health care FSA with carryover: You can carry up to $500 into the next plan year but will lose any amount over $500. 
  • Health care FSA with grace period: You will have 2.5 months after your plan year ends to spend whatever is left in your account. After that, you will lose any unspent funds. 
  • Standard health care FSA: You will lose any unspent money at the end of your plan year.

The take-home message for your employees here is that even if your FSA allows some funds to roll over, it will be for a limited time. The best bet is to budget your FSA thoughtfully and spend the rest by stocking up on FSA-eligible purchases — here are a few you might not have thought of.

How to prepare your employees

Whether you have an FSA, HSA, or both, end-of-year planning is essential. 

First, educate your employees on the rules governing their employer-sponsored accounts. Many HSA and FSA administrators have opaque or confusing processes, making it difficult for employees to know how much money is remaining in their accounts. 

Second, encourage your team to take time to forecast and plan for expenditures in the year ahead. A little budgeting during open enrollment can make a big impact. This exercise can help your team get the most out of their benefits programs. 

At Benepass, you can manage FSA and HSA accounts all in one place, with a convenient mobile and web app for your team to access their funds. Drop us a line at sales@getbenepass.com if you’re interested in learning more.

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Benepass Team

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