Rollovers, Grace Periods and Run Outs

fsa employee benefits
Speak With An Expert

A free consultation that can save you money!

    Each year, it is highly recommended that all companies who offer flexible spending accounts review three important terms that are FSA-related. Your human relations team probably has a good understanding of FSA rollovers, grace periods and runout periods, most employees in other departments tend to not know the difference between them. In some cases, they don’t even realize these options even exist. So what exactly are rollovers, grace periods and run outs? Read on to find out more.


    Rollovers allow employees to use previous funds in the current calendar year. This optional feature was made available by the IRS back in 2013, and it took effect in 2014. Even though rollovers are optional and employers aren’t required to offer them, they’ve seen widespread adoption in the years they have been available. As of 2015, around 60 percent of employers with plans chose to offer rollovers to their employees.

    Without rollover options, FSAs tend to have a nature of either using funds or losing them. Rollovers let employees keep a portion of remaining funds in their plans. According to the IRS, rollovers have a cap limit of $500, but even that limit offers a noticeable upgrade over what was available before rollovers became a thing in 2013.

    Many employees feel pressured to spend unused funds in their FSAs. Rollovers help reduce this pressure placed on employees while simultaneously allowing them to manage major expenses. Rolling over $500 from an annual plan to the next year gives employees the flexibility to prepare for procedures that carry significant costs. If you have a rollover feature with your FSA, it’s important to let your employees know about the option as soon as possible. We recommend doing so before the plan year ends. This way, employees will understand that it’s not necessary to spend the funds in their accounts and that some of the funds will transfer over to the next plan year.

    Grace Periods

    Grace periods allow employees to spend their unused FSA funds in the current plan year. This optional feature is similar to rollovers, but also slightly different. When the new plan year starts, any remaining FSA funds from the previous year can be used by the employee. Unlike rollovers, there aren’t any $500 caps when it comes to grace periods, but there is a time limit as to when the funds can be used. Funds that remain from a previous plan year must be spent within 2 months and 15 days. What this means is that grace periods on most FSA plans will expire on March 15th of a new plan year.

    Most American workers are busy around the holiday season, which is November and December. The option of grace periods alleviates the need for them to spend remaining funds before a plan year ends, giving them a few months time to do so within the next year. If an employee knows that funds will be needed for high-cost medical procedures in the next plan year, like surgeries, grace periods can really come in handy. As an employer, if you have a grace period feature in your FSA plan, be sure to communicate this to your employees before the end of a plan year, preferably before November. Additionally, we recommend reminding employees of the grace period before it ends, typically around mid-February. Doing this will inform employees that funds don’t have to be spent before the end of a plan year, and reminding them that the grace period ends so they don’t forget to use up the funds before they are lost.

    Run-Out Periods

    Run-out periods do have to do with when employees submit their medical expenses from the last plan year. Unlike rollovers and grace periods, run-out periods will not allow employees to transfer their FSA funds from one plan year to the next one. Rather, run-out periods define the amount of time an employee will have to submit their medical receipts for any expenses they accrued in last plan year that qualify under an FSA. Expenses must be paid during the last plan year along with receipts submitted for employees to qualify for run-out periods.

    Typically, employer FSA plans do include the option for run-out periods as a standard. How long these run-out periods last is not defined by the IRS, but rather by the employer. Most employers opt to set a run-out period of 90 days after a plan year ends.

    Just like rollovers and grace periods, employers need to make employees aware of run-out features, preferably within the first few weeks of a new year, and a few weeks before the expiration of the run-out period. With all FSA features, employers should compile a list of expenses that are approved under a plan, so employees understand what is covered and what services qualify.

    Trust the Experts

    There’s a lot to understand when it comes to flexible spending accounts, and many employers need to get their important questions answered before making a decision. If you’re looking for more information about any of the FSA features discussed here, feel free to contact one of our stop-loss experts and specialists here at Prodigy. We look forward to talking with you.

    Speak With An Expert

    A free consultation that can save you money!

      CALL NOW