I Overfunded My FSA This Year. Now What?

Don't panic. All isn't necessarily lost.

If you enjoy saving money on taxes, then you may be in the habit of contributing money to a flexible spending account (FSA). FSA funds are tax-free, so you can exempt a portion of your income from taxes by participating in one. But FSAs have a major drawback -- you have to use up your money by a certain point or otherwise risk forfeiting it.

This year, the maximum allowable contribution was $2,850 for a healthcare FSA. (There are also dependent care FSAs that let you aside money for childcare costs.) If you put too much money into your 2022 FSA, you may be resigned to giving up that money. But before you do, explore these other options.

You might get a grace period

Some FSAs are more rigid than others and require you to spend down your balance before the year comes to an end. But some FSAs offer a grace period that gives you a little extra time to spend your money, so before you panic, see if your plan has that option. If so, you may get until mid-March of 2023 to use up your remaining funds.

You might get a carryover option

Some FSAs let you carry a portion of your funds into the upcoming year if you don't manage to spend down your balance entirely. Note that the IRS sets limits on how much money can be carried over. In 2022, the maximum carryover amount is $570, so if you're sitting on $1,000 in your FSA, you'll need to spend some of that money before the end of the year or risk losing it. But you don't necessarily need to spend all of it.

You may be able to pre-pay some expenses

Maybe your child is undergoing orthodontic treatment where you're on a $200 monthly payment plan that won't wrap up until late 2023. If you're sitting on an excess amount of FSA funds, you can see if you can pay for more of their treatment up front so you can use up your balance.

Similarly, there may be medical supplies or medications you use on an ongoing basis that you can stock up on in late 2022. Say you take a certain prescription daily and are authorized for 90-day supplies. Your health insurance company might allow you to renew your prescription early so you can use current FSA funds for it (you'll need to call and ask). Or, you can buy a whole lot of over-the-counter products like bandages and sunscreen, both of which are FSA-eligible, and load up for 2023.

You might be able to change your contributions

Did you get divorced this year? Are you no longer claiming a child as a dependent on your taxes because your ex-spouse gained custody this year? These could qualify as life changes that allow you to reduce your FSA contribution for 2022. It pays to contact your plan or benefits administrator and see if you can make that adjustment.

Just as you wouldn't want to just throw out a check instead of putting it into your savings account, so too should you make every effort to avoid forfeiting FSA funds. But you may have more options in that regard than you'd think, so it pays to explore your choices before the end of the year.