One of the most common questions about Flexible Spending Accounts is: "What happens to the money I don't spend?" The answer depends on your employer's plan, but in 2026, there are two possible safety nets — and many workers don't realize they have either one. Here's a complete guide to FSA carryover rules.
The 2026 FSA Carryover Limit: $660
For plan years beginning in 2026, the IRS allows employers to let participants carry over up to $660 of unused FSA funds into the next plan year. This is up from $640 in 2025.
Key details:
- The $660 carryover is optional — your employer must elect to offer it.
- The carried-over amount does not count against next year's $3,400 contribution limit. You could theoretically have $4,060 available ($660 carryover + $3,400 new contribution).
- Carryover funds are available immediately at the start of the new plan year.
- There's no "use it first" rule — carryover and new contributions are pooled together.
Carryover vs. Grace Period: What's the Difference?
Employers can offer one, the other, or neither — but not both. Here's how they compare:
| Feature | Carryover | Grace Period |
|---|---|---|
| What it does | Rolls up to $660 into next plan year | Extends spending deadline by 2.5 months |
| Dollar limit | $660 maximum | No dollar limit — full balance eligible |
| Time limit | No time pressure — funds available all next year | Must spend by March 15 (for calendar-year plans) |
| Forfeiture risk | Any amount above $660 is forfeited | Full balance forfeited if not spent by grace period end |
| Availability | Employer's choice | Employer's choice |
Which Is Better?
It depends on your situation:
- Carryover is better if you tend to have small leftover balances ($660 or less) and want zero time pressure.
- Grace period is better if you sometimes have large leftover balances and can realistically spend them within 2.5 extra months.
In practice, the carryover is more popular with employers because it's simpler to administer. About 65% of employers who offer forfeiture protection choose carryover over the grace period.
What If Your Employer Offers Neither?
Some employers offer neither carryover nor grace period. In that case, the traditional "use it or lose it" rule applies — any unspent balance at the end of your plan year is forfeited. Period.
If this is your situation, careful contribution planning is even more critical. Consider contributing conservatively and tracking your spending closely throughout the year.
Where Does Forfeited Money Go?
When FSA money is forfeited, it goes back to your employer. Employers can use forfeited funds to offset plan administration costs or reduce future contributions to the plan. In some cases, forfeited FSA funds are used to offset premiums.
This means your unused FSA money literally becomes your employer's money. Americans collectively forfeit an estimated $4.5 billion per year this way.
How to Avoid Forfeiture
- Know your plan rules. Check whether your employer offers carryover, grace period, or neither. Your benefits portal or HR department can confirm this.
- Track your balance monthly. Don't wait until December to check how much you've spent. Monthly check-ins keep you on track.
- Front-load big expenses. Schedule dental cleanings, eye exams, and other planned care early in the year so you know your remaining balance sooner.
- Stock up on eligible items. Sunscreen, OTC medications, first aid supplies, and contact lens solution are all FSA-eligible and non-perishable. Buy a year's supply before your deadline.
- Consider big-ticket purchases. If your balance is large, look into prescription sunglasses, orthotics, LASIK consultations, or a new pair of prescription eyeglasses.
Special Cases
What happens to carryover if you leave your job?
Generally, you forfeit any remaining FSA balance (including carryover) when you leave your employer. However, you have until your termination date to submit claims for expenses incurred before you left. Some plans allow a run-out period of 30-90 days after termination to submit claims.
Can you change your FSA contribution mid-year?
Only if you experience a qualifying life event (marriage, divorce, birth of a child, change in employment status). Otherwise, your election is locked for the plan year.
Does COBRA affect FSA carryover?
You can elect COBRA continuation for your healthcare FSA, but you'll need to pay the full contribution amount (no employer subsidy). Most people don't find this cost-effective unless they have significant planned medical expenses.
Never Lose Track Again
The easiest way to avoid forfeiture is to know exactly where you stand at all times. SpendRebel monitors your FSA balance, calculates your daily burn rate, and sends escalating reminders as your deadline approaches. It's free — set it up in 2 minutes and stop losing money.