Adoption Assistance FSA: 5 Facts

Everything you need to know about the FSA Carryover

Two months ago, NueSynergy wrote about when carryover funds are available for new FSA members. Now, we are here to provide a more detailed look into what a carryover is, how it works and any questions you may have.

What it is and how it works

Starting on October 31, 2013, the U.S. Department of Treasury adjusted the “Use It or Lose It” rule, providing employers the option to offer a carryover plan to their employees. This option allows up to $570 of remaining FSA balances at a plan year’s end to carryover for use during the next plan year. This is available with Healthcare and Limited Purpose FSAs only.

Funds carried over into the following plan year will be available on the first day of the year unless enrolled in a Health Savings Account (HSA). If that’s the case, then those funds must be carried over into a Limited Purpose FSA.

Keep in mind, carryover funds are non-transferable. This means that if employees with a carryover are terminated mid-year, funds will be treated as any normal election and will be forfeited if COBRA is not elected.

Questions to consider

What happens if a participant has a carryover balance, but does not re-elect a Healthcare FSA?

Employers can choose to allow participants who do not enroll in the new plan year to either forfeit their previous plan year balance or default their carryover into an FSA for the new plan year.

What is the difference between a Healthcare FSA and a Limited Purpose FSA?

A Limited Purpose FSA can only be used for vision and dental expenses. It is intended to work in conjunction with an HSA. A Healthcare FSA covers all eligible medical expenses.

Is additional time offered to participants following the end of the plan year to incur expenses against the previous plan year?

Yes. This is called the grace period. It allows employees additional time, usually 2.5 months, to use remaining funds. If the carryover option is elected, it will replace the grace period option.

Can employers give participants the option of both a carryover and a grace period?

No. An employer can only provide one option within the same plan year.

Adoption Assistance FSA: 5 Facts

When are carryover funds available for a new FSA member?

For new FSA members, there are two carryover fund options to take note of: Healthcare to Healthcare and Healthcare to Limited Purpose. Here they are followed:

Healthcare FSA to Healthcare FSA carryover

As of December 31, any funds up to $570 remaining in a Healthcare FSA will immediately carryover on the first day of the new plan year. This means that the carryover amount is simultaneously available to pay previous plan year expenses and current plan year expenses during the previous plan year run-out period.

Healthcare FSA to Limited Purpose FSA carryover

Remaining carryover funds in a Healthcare FSA as of December 31 can only be used for previous plan year dates of service until the end of the plan run-out period. Any dental or vision expenses incurred during the new plan year can be reimbursed either immediately from the new Limited Purpose FSA, or at the end of the run-out period when any remaining funds from the previous Healthcare FSA are carried over to the Limited Purpose FSA.

We’ve been innovative leaders in providing full-service administration of consumer-driven and traditional account-based plans since 1996.

Our solutions and interactive customer support team are all centered around one goal: helping you help your clients.

Our History
Careers
Our Culture and Leadership

Here you will find details for all our solutions as well as FAQs, forms and guides, eligible expenses and videos.

Resources for Participants
Resources for Employers
Resources for Partners

We’re always
here to help.

IRS Announces 2025 HSA Contribution Limits

IRS Announces 2025 HSA Contribution Limits

The IRS recently announced the 2025 limits for Health Savings Accounts (HSAs) and High Deductible Health Plans (HDHPs). HSA contribution ...

Follow Us On Social Media