FSA Grace Period

An FSA grace period is an extra two and a half months after the plan year ends during which you can still incur expenses and pay for them with the prior year's flexible spending balance. For a calendar-year plan, that means a $400 balance left on December 31 can be spent on a dentist visit or a prescription through March 15. After that, whatever is left is forfeited. Employers may offer the grace period or the carryover, but not both, and some offer neither.

The grace period and the carryover solve the same problem in different shapes. The carryover keeps a capped amount for the whole next year; the grace period lets you spend the entire balance, but only for ten more weeks. Which is better depends on how much you have left. Someone with $1,500 unspent is better off with a grace period and a scheduled dental crown in January. Someone with $150 is better off with a carryover they can forget about. Separately from either, most plans also have a run-out period, typically 90 days, for submitting receipts on expenses already incurred, and people confuse the two constantly: run-out is paperwork time, the grace period is spending time.

The takeaway: find out which one your plan has before December. If it is a grace period, book the appointments you have been putting off for the first weeks of the new year and pay with last year's money.