how much fsa can you roll over to 2026

Deyi Xiabing

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13-03-2025

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How Much FSA Can You Roll Over to 2026? Navigating the Flexibility and Limitations

Flexible Spending Accounts (FSAs) offer a valuable way to save pre-tax dollars for eligible healthcare and dependent care expenses. However, understanding the rules surrounding FSA rollovers, especially regarding the significant changes implemented in recent years, is crucial for maximizing your savings and avoiding penalties. This article will delve into the intricacies of FSA rollovers to 2026, clarifying the limits and providing guidance on planning your FSA contributions effectively.

The Pre-2020 Landscape: Limited Rollover Options

Before 2020, FSA rollover options were extremely limited. Most plans allowed only a limited rollover of up to $550 for healthcare expenses. This small rollover amount often left employees scrambling to use their funds before the plan year ended, leading to potential forfeiture of hard-earned savings. Dependent care FSAs generally had no rollover option at all. This system often forced individuals to either overestimate their needs or risk losing money.

The CARES Act and Expanded Rollover Flexibility (2020-2025)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in 2020, significantly altered the landscape of FSA rollovers. This legislation temporarily allowed for a full rollover of unused healthcare FSA funds into the next plan year. This meant employees could carry over the entire balance of their unused FSA funds from 2020 to 2021, a stark contrast to the previous $550 limit. This temporary expansion was extended through 2025. However, crucially, this expanded rollover provision is set to expire at the end of 2025.

2026 and Beyond: A Return to Limited Rollovers?

With the temporary expansion ending in 2025, the question of how much FSA can be rolled over to 2026 becomes crucial. Currently, there is no indication of a permanent extension of the full rollover provision. Therefore, it's highly likely that the rules will revert to the pre-2020 regulations. This means that for the 2026 plan year and beyond, the rollover limit for healthcare FSAs will likely return to a significantly lower amount, potentially reverting back to the $550 limit or a similar small figure.

Planning for the Post-2025 FSA Landscape:

Given the impending change, careful planning is essential to avoid forfeiting FSA funds. Here’s a breakdown of strategies to consider:

• Realistic Budget Estimation: Accurately estimating your healthcare expenses is paramount. Overestimating can lead to unused funds, while underestimating can leave you short. Review previous years' medical expenses and consider any anticipated healthcare needs, such as routine checkups, prescription medications, or dental work. Factor in potential unexpected expenses.

• Mid-Year Adjustments: Many employers allow mid-year adjustments to FSA contributions. If you find you’ve significantly overestimated your needs, you can often reduce your contributions to prevent accumulating unused funds.

• FSA Debit Card Usage: Utilize your FSA debit card strategically throughout the year. This helps track spending and encourages you to use your funds before the year's end. Consider paying for routine expenses like over-the-counter medications or vision care early.

• Communication with Your Employer: Stay informed about your employer's FSA plan specifics. They may offer additional guidance or resources to help you manage your FSA funds effectively. Ask about their plans regarding FSA rollovers beyond 2025.

• Diversification of Savings: Consider diversifying your savings strategy. While FSAs are beneficial, having additional savings accounts for healthcare expenses can act as a backup in case you underestimate your needs or face unforeseen circumstances. A health savings account (HSA), if eligible, might be a complementary option to consider.

• Review Your Contribution Level: If you're unsure about your healthcare expenses for the coming year, consider contributing a lower amount to your FSA. This minimizes the risk of unused funds and allows you to adapt your contribution throughout the year based on your actual expenses.

Dependent Care FSAs: No Rollover Options

Remember that dependent care FSAs typically do not offer any rollover options, regardless of the year. Unused funds in a dependent care FSA are generally forfeited at the end of the plan year. Therefore, accurate budgeting is particularly critical for this type of FSA.

Potential Future Changes:

While the return to limited rollovers is the most likely scenario, it's important to note that future legislation could alter the rules once again. Staying informed about any changes in tax law and FSA regulations is crucial. Check with your employer and the IRS for the most up-to-date information.

Conclusion:

The ability to fully rollover FSA funds into 2026 is highly unlikely. The temporary expansion provided by the CARES Act is set to expire. Planning carefully for the anticipated return to limited rollover options is crucial to maximize the benefits of your FSA and avoid losing valuable pre-tax savings. By carefully estimating your healthcare needs, monitoring your spending, and staying informed about changes in regulations, you can make the most of your FSA and effectively manage your healthcare finances. Proactive planning and communication with your employer are key to navigating the complexities of FSA rollovers and making informed decisions about your financial future. Remember to check with your specific plan provider for the most accurate and up-to-date information regarding your FSA plan's rollover provisions.