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What Happens to an FSA When You Leave a Job?
Flexible spending accounts (FSAs) offer tax savings on healthcare and dependent care expenses. But what happens to your FSA when you leave your job? The answer depends on the type of FSA you have and the rules of your employer’s plan. Here’s a breakdown of what to expect:
**If you have a health FSA:** You typically have two options: roll over your balance to a new FSA at your new job or take a reimbursement for your remaining balance. If you choose to roll over your balance, you must do so within 60 days of leaving your job. The maximum amount you can roll over is $550. If you choose to take a reimbursement, you will receive a check for the remaining balance in your FSA. Note that you will have to pay taxes on any reimbursement you receive.
What is an FSA?
An FSA is a tax-advantaged account offered by some employers that allows employees to set aside pre-tax dollars to pay for qualified medical and dependent care expenses. There are two types of FSAs: health FSAs and dependent care FSAs.
**Health FSAs** can be used to pay for a wide range of medical expenses, including doctor’s visits, prescriptions, and dental work. **Dependent care FSAs** can be used to pay for child care and other expenses related to the care of dependents.
How FSAs Work
You contribute to your FSA on a pre-tax basis, which means that your contributions are deducted from your paycheck before taxes are calculated. This reduces your taxable income, which can save you money on taxes.
Once you have contributed to your FSA, you can use the funds to pay for qualified expenses. You do not have to submit receipts to your employer for reimbursement, but you may need to provide documentation if you are audited by the IRS. If you do not use all of the funds in your FSA by the end of the year, you will forfeit the remaining balance.
Leaving Your Job
When you leave your job, you have two options for your FSA balance: you can roll it over to a new FSA at your new job, or you can take a reimbursement for the remaining balance.
**Rolling over your balance:** If you roll over your FSA balance, you must do so within 60 days of leaving your job. The maximum amount you can roll over is $550. To roll over your balance, you will need to contact your new employer’s FSA provider and request a rollover form. Once you have completed the form, you will need to send it to your new employer’s FSA provider along with a check for the amount you are rolling over.
**Taking a reimbursement:** If you take a reimbursement for your FSA balance, you will receive a check for the remaining balance in your FSA. Note that you will have to pay taxes on any reimbursement you receive.
Tips and Expert Advice
Here are a few tips to help you make the most of your FSA when you leave your job:
- Contribute as much as you can to your FSA each year. This will reduce your taxable income and save you money on taxes.
- Use your FSA funds for qualified expenses as soon as possible. If you do not use all of your FSA funds by the end of the year, you will forfeit the remaining balance.
- If you leave your job, roll over your FSA balance to a new FSA at your new job, if possible. This will allow you to continue to save money on taxes.
- If you cannot roll over your FSA balance, take a reimbursement for the remaining balance. Note that you will have to pay taxes on any reimbursement you receive.
FAQ
Q: What is an FSA?
A: An FSA is a tax-advantaged account offered by some employers that allows employees to set aside pre-tax dollars to pay for qualified medical and dependent care expenses.
Q: What types of FSAs are there?
A: There are two types of FSAs: health FSAs and dependent care FSAs.
Q: How do FSAs work?
A: You contribute to your FSA on a pre-tax basis, which means that your contributions are deducted from your paycheck before taxes are calculated. This reduces your taxable income, which can save you money on taxes.
Q: What happens to my FSA when I leave my job?
A: When you leave your job, you have two options for your FSA balance: you can roll it over to a new FSA at your new job, or you can take a reimbursement for the remaining balance.
Conclusion
FSAs can be a great way to save money on taxes and healthcare expenses. However, it is important to understand the rules of your employer’s FSA plan so that you can make the best decisions for your financial situation. If you are leaving your job, be sure to contact your employer’s FSA provider to find out what your options are for your FSA balance.
Are you interested in learning more about FSAs? If so, please leave a comment below and I will be happy to answer your questions.
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