The Treasury Department recently changed the rules for health care flexible spending accounts (FSAs) offered by many employers so that participants may be able to carry over up to $500 from one year to the next starting in 2014.
Under current rules participants must use-or-lose their FSA balances at the end of each year or within a brief grace period.
FSAs allow participants to set aside up to $2,500 each year in pre-tax income to pay for medical expenses. Some 33 million Americans take advantage of FSAs, but many younger and healthier workers have shied away from them because of concerns about losing unused balances. Changing the use-it-or-lose-it rules could encourage broader use of FSAs.
The rule is not mandatory: employers who sponsor FSAs will have the option of allowing participants to carry over up to $500.
FSAs are an important tool for advisors and their clients and could take on added significance for consumers in 2014. Analysts have projected that many people could see higher co-pays for medical services as provisions of the Affordable Care Act go into effect. Others may find a greater number of health expenses deemed “non-essential” under the ACA, resulting in higher out-of-pocket costs.
Allowing taxpayers to carry over $500 in FSA balances is a positive step, though NAIFA has advocated allowing consumers to preserve up to $2,500 per year.