The December scramble

Investor Services Insights · Updated for 2026

Each December, American workers forfeit hundreds of millions of dollars in flexible spending account balances. The money does not go to the Treasury. It goes to their employers.

Three plan designs, three deadlines

The use-it-or-lose-it rule is federal, but the softening is optional and no plan may offer both softeners. Yours does one of three things.

Strict forfeiture. Anything unspent when the plan year ends is gone. This is the default and the harshest.

Carryover. The plan permits unused funds — up to $680 for 2026 — to roll into the following plan year. Amounts above the cap are forfeited. A carried-over balance generally does not reduce what you can elect for the new year.

Grace period. The plan grants up to two and a half extra months — to March 15 for a calendar-year plan — to incur new expenses against the old year’s balance. Note the verb: incur. The expense must happen in the window, not merely be paid then.

Distinct from all three is the run-out period, a purely administrative window, often 60 to 90 days after year-end, for submitting claims on expenses already incurred. Nearly every plan has one. It buys filing time, not spending time.

Dependent care is different

The carryover provision applies to health FSAs, not to dependent care FSAs. A dependent care balance is also constrained in a way the health FSA is not: you may be reimbursed only up to what you have actually contributed to date, not up to your annual election. The 2026 limit rose to $7,500 per household, which makes the December math larger than it used to be.

What to do, in order

First, find out which design your plan uses. It is in the summary plan description, and employees who guess usually guess wrong. Second, tally what you have left and when it disappears. Third, spend on things you were going to buy anyway: a deferred dental crown, a year of contact lenses, a replacement pair of prescription glasses, over-the-counter medication for the household cabinet.

What not to do is buy things you do not need in order to avoid forfeiting money. Spending $400 on unneeded goods to rescue $400 of pre-tax dollars is not a saving. It is a purchase you did not want at a modest discount.

The better fix is upstream

The scramble is a symptom of an election made carelessly a year earlier. The right elective amount is a floor, not a ceiling: estimate the spending you are confident will occur — a known prescription, a routine cleaning, an expected copay — and elect that. Under-electing costs you a little tax benefit. Over-electing costs you the money.

This article is general information, not individualized investment, legal, or tax advice. Sources referenced include the Internal Revenue Service, Department of Labor, Securities and Exchange Commission, and FINRA. Consult a qualified professional about your circumstances.

← All insights   Open an account →