Don't Wait Until the Last Minute to Use Up Your FSA Funds

Many employers offer a 2½ month grace period in the new year.


As 2009 comes to a close, it's use-it-or-lose-it time for the funds in your flexible spending account, also known as a flexible spending arrangement. Even if you have money left in your FSA at this late date, there are steps you can take now to spend it, says Deb Cohen, chief knowledge officer at the Society for Human Resource Management. "The last thing you want to do is have unused funds," Cohen says. "It's been taken out" of your paycheck all year long, and there's no way to get your money back, so don't let it go to waste. Here are five things to keep in mind if you have unused money in your FSA: 

Find out whether you need to rush. Ask if your employer has adopted a grace period, which, per a 2005 notice issued by the Internal Revenue Service, allows employees to submit expenses as many as 2½ months into the new year. That gives you until mid-March to spend the money. 

Know what is eligible. Because employers can edit the list of eligible FSA expenses, check with your FSA administrator to find out what's eligible for reimbursement at your company. Medical expenses—including prescription and office visit copayments, coinsurance, deductibles, and over-the-counter expenses for medical items such as medications and medical equipment—are typically eligible. Other expenses that usually qualify include acne treatments, allergy medicines, antibiotic creams or ointments, arthritis relief products, toothache relief products, foot care, first aid items, incontinence products, shampoo for psoriasis or lice, and vaporizers or humidifiers. For more ideas, see the federal government's full list of eligible items for its own employees. 

Gather your receipts. Do you have leftover receipts from purchases or doctor's visits from 2009? If so, now is the time to file an FSA claim to get reimbursed. (Avoiding this last-minute hassle is why it's key to organize and keep receipts throughout the year, Cohen says.) 

Purchase now what you expect to need in 2010. If you have a chronic medical problem that requires medication, or you know that you get a cold every year around the same time, purchase the prescription or OTC medications you expect to need now. Do the same for any medical equipment, such as an extra brace for a bad knee or ankle, Cohen advises. And if you're having a tough time using up funds, consider buying expensive items such as glasses or a year's supply of contact lenses, even if you don't immediately need them. 

Plan your 2010 contribution. Think a bit about whether you'll have any extra medical expenses in the next calendar year. For example, if you have surgery planned or know you'll need new glasses, factor that into the amount you put into your FSA in 2010. (Your employer may set a cap on how much you contribute—say, $3,000 or $5,000—though most employees contribute less than that.) "Try to make informed decisions," Cohen advises. Ask ahead of time, "How much is it going to cost?" Then deposit accordingly.