‘Use-or-Lose’ Rule Changing For Flexible Spending Accounts

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(Washington, D.C.) There’s good news for workers worried about forfeiting the money they put into their flexible spending accounts at the end of the year.

On Thursday, the U.S. Treasury Department announced it would be relaxing a rule that requires account holders to “use-or-lose” the funds in their accounts by the end of the year.

Employers will now be able to allow participants to carry over up to $500 in unused funds into the next year.

Currently, most forfeited amounts are less than $500, according to the Treasury.

Sponsored by employers, health flexible spending accounts (or FSAs) are a handy way for workers to use pre-tax dollars to pay for certain medical expenses, such as doctor’s fees and prescription drug costs.

The change comes in response to individual and employer complaints that it’s hard to predict future medical needs and that the “use or lose” rule encourages unnecessary spending on medical services and items at the end of the year.

An estimated 14 million families already participate in health FSAs. The changes may encourage other workers to use the accounts, which financial planners say are a good way to manage out-of-pocket medical costs.

“We are always looking for ways to provide added flexibility and commonsense solutions to how people pay for their healthcare,” Treasury Secretary Jacob Lew said in a statement.

But first, employers need to offer this option to workers. The Treasury Department said the changes can be implemented as early as the 2013 plan year.

Employers that already offer a “grace period” of up to two and a half months can choose to instead allow the rollover, but cannot offer employees both a carryover and grace period, the department said.