As the end of the year quickly approaches, now is the time to review your FSA, HSA, and HRA accounts. These benefits can save you hundreds—or even thousands—of dollars in taxes and out-of-pocket medical costs, but only if you use them correctly and on time.
Most FSA and HRA plans are offered through employers, while HSAs may be offered through employers or purchased independently through the marketplace. Each account works differently, especially at year-end.
Below is a clear, practical guide to help you avoid losing money and make the most of your benefits before December 31.
Flexible Spending Accounts (FSA)
The Big Rule: “Use It or Lose It”
Most FSAs require you to use your funds by the end of the plan year or risk forfeiting any remaining balance.
Some employer plans allow one exception—but never both:
- Grace period: Extra time (usually until March 15) to incur expenses
- Carryover: Roll over up to $640 (2024–2025 IRS limit; subject to change)
Employees must check their specific plan rules. These exceptions are not automatic.
Important:
- The service must occur by the deadline
- Reimbursement requests can usually be submitted afterward if the service date qualifies
Common Eligible FSA Expenses
- Copays, deductibles, coinsurance
- Prescription medications
- Over-the-counter medications (no prescription required)
- First aid supplies
- Glasses, contacts, and eye exams
- Dental care (cleanings, fillings, crowns, orthodontia payments)
- Chiropractic care and physical therapy
- Mental health counseling
December FSA Reminder: Don’t Lose Your Money
If you have an FSA, December is decision time. Any unused funds may disappear after year-end depending on your plan.
Health Reimbursement Arrangements (HRA)
How HRAs Are Different
- Employer-funded only (employees cannot contribute)
- No universal “use it or lose it” rule
- Unused funds depend entirely on employer plan design
- Plan year is not always calendar year
Possible Year-End Outcomes
Depending on the plan:
- Funds roll over automatically
- Funds expire at year-end
- Funds remain available while employed
- Funds are forfeited when employment ends
Common HRA-Eligible Expenses
- Medical expenses not covered by insurance
- Deductibles and copays
- Sometimes premiums (plan-specific)
- Vision and dental expenses
HRAs are highly customized, and employees should review plan documents or ask HR.
Health Savings Accounts (HSA)
An HSA is employee-owned, fully portable, and never expires. Year-end planning focuses on tax savings and long-term strategy, not rushing to spend.
How HSA Contributions Save You on Taxes
HSAs offer triple tax advantages:
- Pre-tax contributions
- Tax-free growth
- Tax-free withdrawals for qualified medical expenses
Contributing Before December 31 (Payroll Contributions)
The biggest tax benefit comes from payroll deductions.
What happens:
- Reduces federal income tax
- Reduces state income tax (most states)
- Reduces FICA (Social Security & Medicare)
Example:
- $3,000 contribution
- 22% federal tax bracket
- 7.65% FICA avoided
Estimated savings: ~$800–$900+
Immediate tax savings in your paycheck
Contributing After December 31 (Before Tax Filing Deadline)
Missed payroll? You still have options.
- Contribute directly to your HSA
- Claim an above-the-line deduction on your tax return
Reduces income taxes
Does not reduce FICA taxes
Why This Helps the New Year
- Lower taxable income when filing
- Funds roll over forever
- Tax-free growth
- Use next year—or decades later
Long-Term Advantage
After age 65:
- Medical withdrawals = tax-free
- Non-medical withdrawals = taxed like an IRA (no penalty)
Many advisors call HSAs the most tax-efficient account available.
FSA – HRA – HSA – End of Year Checklist
Step 1: Identify What Accounts You Have
Check whether you have:
- FSA (Flexible Spending Account – employer-sponsored)
- HRA (Health Reimbursement Arrangement – employer-funded)
- HSA (Health Savings Account – employer or marketplace)
Quick Rule of Thumb: Have an FSA? Spend it or plan it. HRA, check the rules. Have an HSA, fund it, and grow it!
Many people have more than one—rules are different for each.
Step 2: Log In & Check Balances
For each account:
- Confirm current balance
- Review eligible expense categories
- Check reimbursement or spending deadlines
Step 3: Know the Year-End Rules (Critical)
FSA
- Confirm if your plan has:
- December 31 “use it or lose it”
- Grace period (usually until March 15), or
- Carryover (up to IRS limit)
- Plans allow either grace period or carryover—never both
HRA
- Confirm employer rules:
- Do funds roll over?
- Do funds expire at year-end?
- Are funds tied to employment status?
- Are premiums eligible?
HSA
- Funds never expire
- Balance rolls over automatically
- Account is yours even if you change jobs
Step 4: Schedule Eligible Appointments (If Needed)
Book before year-end if required by your plan:
- Dental cleanings, fillings, crowns
- Vision exams, glasses, contacts
- Chiropractic or physical therapy
- Mental health counseling
Service date must occur before the deadline, even if reimbursement is submitted later.
Step 5: Spend Smart on Eligible Items
Common eligible expenses across accounts (varies by plan):
- Copays, deductibles, coinsurance
- Prescription medications
- Over-the-counter meds (no Rx needed for FSA/HSA)
- First-aid supplies
- Glasses, contacts, contact solution
- Dental and vision care
Step 6: Maximize Contributions (HSA Only)
If you have an HSA:
- Confirm HSA eligibility (HDHP, no Medicare, etc.)
- Increase payroll contributions before December 31 for maximum tax savings
- If needed, plan a direct contribution before the tax filing deadline
Step 7: Submit & Track Reimbursements
- Upload receipts and EOBs
- Confirm claims are approved
- Resolve missing documentation before deadlines
Step 8: Save Documentation
- Keep receipts and EOBs
- Store digitally for easy access
- Retain long-term for HSA reimbursements
Final Reminders
Know what type of plan you have! If you have an FSA, unused funds may be forfeited. If you have an HRA, the rules are employer specific. When you have a high-deductible plan with an HSA, take advantage of the best long-term and tax-efficient benefits! Never assume roller – always verify!
If you’re unsure how your specific plan works, now—not December 31—is the time to check. A few minutes of review can make a meaningful difference in your finances heading into the new year. Still unsure? Check with your HR department, or your local Agent!
