FSAs Have New Rollover Option
November 1, 2013
The IRS Allows Rollover of Health FSA Funds – Eliminating the “Use it or Lose it” Rule
The IRS released Notice 2013-71 on October 31, 2013 which offers the option for participants to rollover up to $500 at the end of the plan year instead of a 2 1/2 month grace period in which to spend down their FSAs. The notice specifies that money carried over can be used for the old or new plan year.
Employers must choose to either offer the 2 1/2 month grace period OR the $500 rollover option. Additionally, you can amend your 2013 plan (current plan) to allow the rollover option before December 31, 2013. If you do not have a calendar year plan, you may amend your existing plan any time prior to the plan year end date.
WHAT YOU NEED TO KNOW
- Applies to 2013 plan years and the 2014 plans.
- Applies only to health FSAs;
- Groups with existing FSAs that want to replace the 2 1/2 month grace period with this new rollover option must amend the Flex plan.
- Does not affect the $2,500 maximum contribution currently in place. In other words, the employee could contribute $2,500 in 2014, carryover from 2013, giving them $3,000 for the 2014 plan year.
- The $500 rollover may be used for expenses incurred in the new plan year (e.g., 2014) as well expenses from the previous plan year. This change creates expanded flexibility for participants to spend their flex dollars.
- Employer is not required to offer this change.
CONTACT US IF YOU HAVE QUESTIONS
We will continue to keep our clients informed as further information becomes available. If you have questions, please contact your Cottingham & Butler representative.