The End of the Year Is Coming. Make Sure to Do This With Your FSA

You don't want to give up money, do you?

There are plenty of benefits to saving money in a flexible spending account, or FSA. FSAs let you set aside funds to cover qualified healthcare expenses like copays, eyeglasses, and prescriptions. And the money you put into an FSA goes in tax-free, so you can lower your IRS burden by funding one of these plans.

Another benefit to having an FSA? The money you contribute gets deducted from your paychecks automatically, the same way it works with contributions to a 401(k) plan. That way, you don't necessarily miss the money month after month, but also, you have some cash reserves you can tap when healthcare bills arise unexpectedly. And that could spell the difference between having to rack up credit card debt or not.

But while FSAs have their perks, they're actually surprisingly inflexible, despite their name. See, with an FSA, you're required to commit to a yearly contribution amount before your plan year begins. And unless you undergo a qualifying life change, like a marriage, divorce, or birth of a child, the amount you commit to your FSA is the amount you're stuck with.

As such, many people end up in a situation where the end of the year is near and their FSA balances aren't fully depleted. And so if you haven't used up your FSA at this point in 2022, it may be time to start making plans to spend that money so you don't lose it.

How much of a time crunch are you in?

Generally speaking, FSAs require you to spend down your plan balance every year. So if you put $2,000 into your 2022 FSA, you may have to spend all of that money by Dec. 31 to avoid losing some of it.

But that's not automatically the case. Some FSAs offer a grace period that gives you until March to use up your funds. Other FSAs allow you to carry some funds into the upcoming plan year. If yours falls into the latter category, you may be allowed to carry up to $570 of your balance into 2023 -- but not more. So pay attention to your plan's rules to avoid losing money.

How to use up your FSA in time

You may only have a number of weeks left to spend down your FSA funds. If that's the case, try your best to push up medical appointments so you can pay your copays in December versus January or February. And if you're able to renew prescriptions early, do so.

You can also use your FSA to load up on a number of over-the-counter medications and products you're apt to end up needing during the year. Sunscreen, for example, is one of them -- something that catches a lot of FSA savers by surprise. So while you may not have a pressing need for sunscreen in November, if you have $100 left in your FSA and nothing else to spend your money on, you could buy enough sunscreen to get your family through the summer of 2023.

All told, FSAs are a useful financial product, but they have their limitations. If you're sitting on excess FSA funds at this point of the year, don't let that money go to waste. Instead, find ways to use that money up, even if it means having to get a bit creative.