Why Do FSA and HSA Dollars Expire? Explained

Have you ever wondered why FSA and HSA dollars expire? It can be frustrating to lose your hard-earned funds, so let's dive into the reasons behind this!

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are both great tools for saving money on healthcare expenses. However, one key difference between the two is how the funds are handled when it comes to expiration.

Here are a few reasons why FSA and HSA dollars expire:

• IRS Regulations: The Internal Revenue Service (IRS) sets rules on FSAs and HSAs, including guidelines on fund expiration. This is to ensure that these accounts are used for their intended purpose of covering medical expenses.
• Annual Limitations: FSAs typically operate on a
  

  Have you ever paused to think about why your FSA and HSA funds have an expiration date? It’s indeed a letdown to forfeit money you’ve set aside for health expenses, so let’s delve into what causes these funds to have a time limit!

  Both Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are beneficial for budgeting healthcare costs. However, there's a major distinction in how the funds are treated when it comes to expiration. For instance, while HSAs allow you to roll over funds to future years, FSAs enforce a 'use it or lose it' policy, often leading to confusion.

  Here are some explanations for why funds in your FSA and HSA can expire:

  • IRS Set Guidelines: The IRS imposes certain rules regarding FSAs and HSAs, ensuring that the money saved in these accounts is used primarily for healthcare expenses. This regulation is designed to maximize the funds' utility within the healthcare system.
  • Annual Spending Limits: Typically, FSAs enforce a use-it-or-lose-it rule, where funds must be spent by the end of the plan year, adding pressure on users to manage their spending wisely. However, many employers now offer a small grace period or allow a limited amount to be rolled over into the next year.