2025 FSA Rollover: What You Need to Know

FSA rollover
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As we approach the end of 2022, it’s time to start thinking about your 2025 FSA rollover. The deadline to make a rollover contribution is April 15, 2026, but it’s always a good idea to get a head start. By rolling over your FSA funds, you can avoid losing them and continue saving for future healthcare expenses.

There are a few things to keep in mind when rolling over your FSA funds. First, you can only roll over funds from a health FSA or a dependent care FSA. Second, the amount you can roll over is limited to the lesser of your unused balance or $550. Third, you must make the rollover contribution to another health FSA or a dependent care FSA. You cannot roll over FSA funds to an HSA or any other type of account.

If you have any questions about rolling over your FSA funds, be sure to contact your plan administrator. They can provide you with more information and help you complete the rollover process. Rolling over your FSA funds is a great way to save money and continue saving for future healthcare expenses. Don’t miss out on this opportunity to save!

Maximizing Retirement Savings: Rolling Over Your FSA in 2025

What FSA Funds Can I Roll Over?

With a healthcare flexible spending account (FSA), you can set aside pre-tax dollars to pay for qualified medical expenses. In 2023, you can contribute up to $3,050 to your FSA. Any unused funds at the end of the year are typically forfeited.

However, starting in 2025, you will be able to roll over up to $550 of unused FSA funds into a Health Savings Account (HSA) or other eligible retirement account. This is a great opportunity to maximize your retirement savings, and it is especially beneficial if you are nearing retirement age or if you have a high-deductible health plan (HDHP).

To be eligible for the FSA rollover, you must meet the following requirements:

You must have an FSA that is offered by your employer.
You must be enrolled in an HDHP.
You must have unused FSA funds at the end of the year.

If you meet these requirements, you can roll over up to $550 of your unused FSA funds into an HSA or other eligible retirement account. The rollover must be made by April 15 of the following year.

Year	Rollover Limit
2023	$0
2024	$0
2025	$550
2026	$550

Why Roll Over Your FSA Funds?

There are several benefits to rolling over your FSA funds into an HSA or other eligible retirement account.

Tax savings: HSA contributions are made pre-tax, which means that they are not subject to federal income tax. This can save you a significant amount of money, especially if you are in a high tax bracket.
Investment growth: HSA funds can be invested in a variety of investment options, such as stocks, bonds, and mutual funds. This allows your money to grow over time, tax-free.

Retirement savings: HSA funds can be used to pay for qualified medical expenses in retirement. This can help you save money on your healthcare costs during your golden years.

Tax Implications of FSA Rollover

Federal Income Taxes

FSA contributions are made pre-tax, meaning the funds are deducted from your paycheck before taxes are calculated. When you roll over FSA funds to the subsequent plan year, they remain tax-free. However, if you withdraw the funds for non-qualified medical expenses, you will be subject to federal income taxes on the amount withdrawn.

State Income Taxes

The tax implications of an FSA rollover for state income taxes vary depending on the state you reside in. Some states, such as California and New York, do not have an income tax, so rolling over FSA funds has no state income tax implications. Other states, such as Illinois and Pennsylvania, have a state income tax, but they do not tax FSA contributions or withdrawals. A few states, such as Arizona and Virginia, do tax FSA contributions and withdrawals. It is important to check with your state’s tax authority to determine the specific tax implications of an FSA rollover in your state.

Payroll Taxes

FSA contributions are not subject to payroll taxes (Social Security, Medicare, and unemployment insurance). This means that when you roll over FSA funds, the funds are not subject to payroll taxes in the subsequent plan year. However, if you withdraw the funds for non-qualified medical expenses, the amount withdrawn is subject to payroll taxes.

FSA Contribution	Federal Income Tax	State Income Tax	Payroll Taxes
Made pre-tax	Not taxed	Varies by state	Not taxed
Rolled over to subsequent plan year	Not taxed	Varies by state	Not taxed
Withdrawn for qualified medical expenses	Not taxed	Varies by state	Not taxed
Withdrawn for non-qualified medical expenses	Taxed	Varies by state	Taxed
Unused balance at end of plan year	Forfeited	Varies by state	Not taxed

Eligibility and Requirements for FSA Rollover

To be eligible for an FSA rollover, you must meet the following requirements:

You must have an active FSA with your employer.
You must have unused funds in your FSA at the end of the plan year.
Your employer must offer an FSA rollover option.

FSA Rollover Contribution Limits

The amount of unused funds that you can roll over into the next plan year is limited by the IRS. For 2025, the FSA rollover contribution limit is $610. This limit applies to all types of FSAs, including health FSAs, dependent care FSAs, and transportation FSAs. Even if you have multiple FSAs with different employers, the total amount that you can roll over cannot exceed $610.

The FSA rollover contribution limit is indexed to inflation, which means that it increases each year with the cost of living. The limit for 2025 is 10% higher than the limit for 2024.

Year	FSA Rollover Contribution Limit
2024	$560
2025	$610

Deadline and Process for FSA Rollover

The deadline for rolling over funds from a Flexible Spending Account (FSA) to a Health Savings Account (HSA) is April 15th of the year following the year the funds were contributed to the FSA. For example, funds from an FSA in 2023 must be rolled over to an HSA by April 15, 2024.

To roll over FSA funds to an HSA, you must follow these steps:

Open an HSA with a qualified HSA provider.
Contact your FSA provider and request a distribution of your FSA funds.
Deposit the FSA funds into your HSA within 60 days of receiving them.

It is important to note that only unused FSA funds can be rolled over to an HSA. Additionally, the amount you roll over cannot exceed the annual contribution limit for HSAs, which is $3,850 for individuals and $7,750 for families in 2023.

Benefits of Rolling Over FSA Funds to an HSA

There are several benefits to rolling over FSA funds to an HSA, including:

HSAs offer tax-free investment growth.
You can use HSA funds to pay for qualified medical expenses at any time, even after you retire.
HSA funds are not subject to annual spending limits like FSAs.

Eligibility for FSA Rollover to HSA

In addition to meeting the deadline and following the process outlined above, you must also meet the following eligibility requirements to roll over FSA funds to an HSA:

You must have a qualified high-deductible health plan (HDHP) in the year you make the FSA contribution and the year you roll over the funds to an HSA.
You must not be enrolled in any other health coverage, such as Medicare or Medicaid, during the year you make the FSA contribution or the year you roll over the funds to an HSA.
You must not have contributed more than the annual contribution limit to your FSA in the year you make the contribution.

Rollover Deadline	Maximum Rollover Amount
April 15th of the year following the year funds were contributed to the FSA	Annual HSA contribution limit (e.g., $3,850 for individuals and $7,750 for families in 2023)

Advantages of FSA Rollover

FSAs allow employees to set aside pre-tax dollars for qualified medical expenses and other eligible expenses. This can result in significant tax savings. Rolling over FSA funds to the next plan year can provide additional benefits, including:

Increased savings: By rolling over unused funds, employees can continue to enjoy tax savings in the next plan year.
Flexibility: Rollover funds can be used to cover expenses that occur during the first 2.5 months of the next plan year, even if the funds were not used in the previous plan year.
Peace of mind: Knowing that unused funds will be available in the next plan year can provide peace of mind and reduce financial stress.

Disadvantages of FSA Rollover

While FSA rollovers offer several advantages, there are also some potential drawbacks to consider:

Limited rollover amount: Only certain types of FSAs allow rollovers. Health FSAs (HFSA) and dependent care FSAs (DCFSA) have rollover provisions, while limited expense FSAs (LEXFSAs) do not.
Use-it-or-lose-it rule: Any unused funds in an FSA at the end of the plan year and the 2.5-month grace period will be forfeited and returned to the employer’s plan.
Tax implications: If funds are not used for qualified expenses by the end of the grace period, they will be subject to income tax and may also be subject to an additional 20% penalty.

FSA Rollover Limits

The maximum amount that can be rolled over from one plan year to the next is determined by the type of FSA and the employer’s plan design. The following table summarizes the rollover limits:

FSA Type	Rollover Limit
Health FSA (HFSA)	Up to $610 (2023 limit)
Dependent Care FSA (DCFSA)	Up to $2,850 per year for each qualifying dependent (2023 limit)

Strategies for Effective FSA Rollover Planning

1. Understand Rollover Options

Review your FSA plan options to determine your rollover eligibility and conditions. Some plans may allow up to 50% of unused funds to be rolled over, while others may offer no rollover provisions.

2. Plan Ahead

Estimate your anticipated FSA expenses before the end of the plan year. If you foresee having excess funds, consider reducing your future FSA contributions to minimize any rollover forfeiture.

3. Use Flexible Spending Account for Healthcare Expenses

Maximize the use of your FSA for eligible healthcare expenses, such as copays, prescriptions, and dental care. This helps minimize any rollover funds that may be subject to forfeiture.

4. Contribute to a Health Savings Account

If you’re eligible for an HSA, consider contributing any excess FSA funds. Unlike FSAs, HSAs offer triple tax benefits and allow unused funds to roll over indefinitely.

5. Donate to Charity

Make a charitable donation of up to your remaining FSA balance. This allows you to support a cause you care about while avoiding the potential loss of unused funds.

6. Choose FSA Plan with Rollover Provisions

Plan Type	Rollover Limit	Rollover Eligibility
Traditional Health FSA	Up to 50%	For unused funds over $500
Limited Expense Health FSA	None	No rollover allowed
Dependent Care FSA	Up to 100%	For unused funds over $250

Alternative Options to FSA Rollover

1. Health Savings Account (HSA)

An HSA is a tax-advantaged savings account used to pay for qualified medical expenses. It offers triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free when used for healthcare expenses.

2. Dependent Care Flexible Spending Account (DCFSA)

A DCFSA is used to pay for eligible child or adult dependent care expenses, such as daycare, babysitting, or summer camp. Contributions are made pre-tax, which reduces your current income taxes. Withdrawals are tax-free when used for qualified expenses.

3. Commuter Benefits Account

A commuter benefits account allows employees to use pre-tax dollars to pay for eligible commuting expenses, such as bus passes, train fares, or parking. This can save you money on taxes and reduce the cost of commuting.

4. Premium Conversion Plan

A premium conversion plan allows employees to use pre-tax dollars to pay for their health insurance premiums. This can reduce your taxable income and save you money on taxes. However, it may affect your eligibility for certain government benefits.

5. High-Deductible Health Plan (HDHP) with Health Savings Account (HSA)

An HDHP is a health insurance plan with a higher deductible than traditional plans. However, it is paired with an HSA, which allows you to save for future medical expenses. This can be a good option if you are healthy and don’t expect high medical expenses.

6. Retiring or Leaving the Plan

If you are retiring or leaving the plan, you may have different options for your FSA balance. You may be able to take a lump-sum distribution, roll it over to another FSA or HSA, or forfeit the balance.

7. Other Considerations

Factor	FSA Rollover	Alternative Options
Tax Treatment	Tax-free	Varies by option
Investment Options	Limited	Greater variety
Contribution Limits	Annual limit	Vary by option and year
Withdrawal Rules	Use-it-or-lose-it	Vary by option

Employer Considerations for FSA Rollover

1. Plan Design

Determine the eligibility criteria for rollover contributions, maximum contribution limits, and any restrictions on the types of expenses that can be reimbursed.

2. Communication to Employees

Provide clear and timely information to employees about the rollover option, including the eligibility requirements, contribution limits, and reimbursement process.

3. Plan Administration

Establish a system to track rollover contributions, process reimbursements, and ensure compliance with IRS regulations.

4. Reporting and Filing

Compile and submit accurate reporting and filing information to the IRS regarding rollover contributions and reimbursements.

5. Impact on Premium Assistance

Consider the impact of rollover contributions on the calculation of premium assistance contributions for applicable employees.

6. Coordination with Payroll

Coordinate with payroll to ensure that rollover contributions are withheld from employee paychecks and deposited into the FSA.

7. FSA Account Balances

Monitor FSA account balances to ensure that employees do not accumulate excessive funds that may result in forfeiture at the end of the plan year.

8. Grace Period Options

Evaluate the options for extending the grace period for rollovers to allow employees additional time to make contributions after the end of the plan year.
**Grace Period Options:**

Option	Description
60-Day Grace Period	Employees have 60 days after the end of the plan year to make rollover contributions.
2½-Month Grace Period	Employees have until March 15th of the following year to make rollover contributions.

The Future of FSA Rollover in 2025

What is an FSA Rollover?

An FSA rollover is the process of transferring unused funds from a flexible spending account (FSA) to a health savings account (HSA) or another eligible FSA at the end of the plan year.

The Current FSA Rollover Rules

Under current rules, participants can only roll over up to $500 of unused FSA funds to an HSA. This limit is per participant, regardless of the number of FSAs they have.

The Proposed FSA Rollover Changes for 2025

The Consolidated Appropriations Act of 2023 proposed significant changes to the FSA rollover rules for plan years beginning after December 31, 2025.

Key Changes to the FSA Rollover Rules

Increase the FSA rollover limit to $1000
Allow participants to roll over unused FSA funds to another eligible FSA
Extend the grace period for using FSA funds from 2.5 months to 12 months

Benefits of the Proposed Changes

Provide participants with more flexibility in managing their healthcare expenses
Reduce the risk of forfeiting unused FSA funds
Encourage participants to save more for future healthcare costs

Impact on Employers

The proposed FSA rollover changes could have a significant impact on employers. Employers will need to update their FSA plans and communicate the new rules to employees.

Implementation Timeline

The proposed FSA rollover changes are scheduled to take effect for plan years beginning after December 31, 2025.
Employers should start planning for the changes now to ensure a smooth transition.

Additional Considerations

There are a few additional considerations that employers should keep in mind when implementing the new FSA rollover rules:

FSA Compatibility

Not all FSAs are compatible with the rollover rules. Employers should confirm that their FSAs are eligible before allowing participants to roll over funds.

Tax Implications

FSA rollovers may have tax implications for participants. Participants should consult with a tax advisor to determine the potential tax consequences of rolling over FSA funds.

Best Practices for a Smooth FSA Rollover

1. Understand Rollover Rules

Familiarize yourself with the FSA rollover deadlines and limits to avoid any penalties or forfeitures.

2. Track FSA Balances

Keep a record of your FSA balances throughout the year to make informed decisions about rollover usage.

3. Use FSA Funds Wisely

Allocate FSA funds strategically to cover eligible expenses and maximize your benefits.

4. Consider Health Savings Account (HSA)

If eligible for an HSA, explore the benefits and consider rolling over FSA funds to minimize taxes.

5. Review FSA Usage

Analyze your FSA usage patterns to identify areas where you can optimize spending and minimize forfeitures.

6. Plan Ahead for Rollovers

Start planning forFSA rollovers well in advance to ensure a seamless transition.

7. Communicate with FSA Administrator

Stay in touch with your FSA administrator for updates, reminders, and guidance.

8. Use Online Portals

Take advantage of online FSA portals to manage your account, track expenses, and initiate rollovers.

9. Review Your Policy Documents

Refer to yourFSA plan documents for specific rules and restrictions related to rollovers.

10. Consider an Over-the-Counter (OTC) Rollover

For amounts less than $500, consider OTC rollovers that allow unused funds to be rolled over into the next plan year without a grace period. OTC rollovers can be used to:


Expense Type	OTC Rollover Eligible?
Prescription Drugs	Yes
Medical Devices	Yes
Dental Expenses	Yes
Vision Expenses	No

2025 FSA Rollover

The 2025 FSA rollover deadline is approaching quickly. FSA holders have until October 15, 2025, to make a decision about what to do with their remaining funds. There are several options available, each with its own benefits and drawbacks. FSA holders should carefully consider their options and make the decision that is best for their individual circumstances.

One option is to simply roll over the remaining funds into a new FSA account. This is the simplest option and it allows FSA holders to continue using their funds for qualified medical expenses. However, there are some potential drawbacks to this option. First, FSA funds must be used within the plan year or they are forfeited. Second, FSA holders may not be able to roll over all of their remaining funds. The maximum amount that can be rolled over is $500.

Another option is to withdraw the remaining funds and use them for non-medical expenses. This option is more flexible than rolling over the funds, but it also means that the funds will be taxed as income. FSA holders who withdraw their remaining funds should be sure to keep track of the amount they withdraw so that they can report it on their taxes.

Finally, FSA holders can also donate their remaining funds to a qualified charity. This option allows FSA holders to get a tax deduction for the amount of the donation. However, FSA holders should be aware that the donation must be made before the end of the plan year.