What happens to unused funds in an FSA that exceed $500?

In the context of Flexible Spending Accounts (FSAs), any unused funds that exceed a certain limit—specifically beyond $500—typically belong to the employer. This principle is rooted in the "use-it-or-lose-it" rule that traditionally governs FSAs. If participants do not utilize their allocated funds by the end of the plan year, those funds generally cannot be reclaimed by the participant and revert to the employer.

While there are options for carrying over excess funds in some plans, the limit on the amount that can typically be rolled over is often capped at $500. Any amount over this limit will not be available for the participant in the next plan year, affirming the employer's right to retain those funds. Understanding the treatment of unused funds is important for employees participating in an FSA, as it influences their spending and planning regarding medical expenses throughout the year.