Leftover FSA Money? Use It Before You Lose It with a 3‑Step Spend‑Down Checklist

If you have leftover FSA money, here’s the one rule that prevents most “oops, it expired” moments:

Rule-of-thumb (the “20% Buffer Rule”): Try to be at or below 20% of your yearly election with at least 2 pay cycles left in your plan year.

Why 20%? Because IRS guidance ties the maximum permitted carryover (when your employer offers carryover) to 20% of the annual salary-reduction limit. Your plan might allow less—or none. But as a “don’t-get-burned” buffer, 20% is easy to remember and usually conservative. (irs.gov)

This post is educational only—not individualized tax or financial advice. Always follow your plan’s rules.

First, translate “deadline” into three dates (because FSA has three clocks)

Most forfeits happen because people track the wrong “end.”

Plan year end: last day you can normally incur an expense.
Grace period end (if your plan offers it): an optional window (up to the 15th day of the 3rd month after plan year end) where you can still incur expenses using prior-year funds. (irs.gov)
Run-out (claims) deadline: the last day you can submit claims for expenses you already incurred (during the plan year, and during the grace period if you have one). This run-out period is set by the employer/plan and can be different across plans. (irs.gov)

One more key rule most people miss:

Carryover and grace period don’t stack for health FSAs—a plan that allows the carryover feature generally cannot also offer the grace period for the health FSA. (irs.gov)

So your first job is not “spend.” Your first job is: find out which clock you’re on.

The 3‑Step Spend‑Down Checklist (simple, fast, boring—in a good way)

Step 1) Confirm your plan’s “use it” rules in 5 minutes

Pull your plan docs (often the Summary Plan Description) or your administrator portal and write down:

Do I have carryover, grace period, or neither? (Health FSA usually has one or neither.) (irs.gov)
What’s my run-out (claims submission) deadline? (irs.gov)
What’s the “incur-by” deadline? (Plan year end, or grace-period end.) (irs.gov)
Any special exclusions or documentation rules? (Some items require itemized receipts; some require prescriptions/letters of medical necessity depending on the item and your plan’s substantiation process.) (irs.gov)

If you only do one thing today: identify your run-out deadline. Many people lose money even after buying eligible things—because the paperwork missed the deadline. (irs.gov)

Step 2) Sort your remaining balance into “Sure / Flexible / Risky”

Don’t shop randomly. Sort your options by how likely they are to reimburse cleanly and on time.

A) “Sure things” (high certainty, low drama)

Think: expenses clearly tied to medical care, easy to document, and likely to be eligible.

Visits, exams, treatments, and diagnostic devices that meet the IRS definition of medical care (diagnosis, cure, mitigation, treatment, prevention, or affecting a body function). (irs.gov)
Prescriptions and refills (where applicable), plus standard medical supplies that are clearly medical in nature. (irs.gov)

B) “Flexible things” (good, but plan-dependent)

These are common, but eligibility can depend on the exact item and how it’s classified.

Dental/vision items and services (often eligible; details vary). (irs.gov)
Over-the-counter products that may be eligible under current rules (again: check your plan’s portal list and substantiation requirements). (irs.gov)

C) “Risky things” (avoid near the finish line)

These are the classic “denied claim” traps when you’re close to deadlines:

Items that are “general health” or lifestyle-adjacent (often not medical care). (irs.gov)
Purchases that usually need extra paperwork (letters, special invoices, diagnosis codes, or details you may not get quickly).
Anything you can’t confidently document with an itemized receipt showing what was purchased and when.

Simple rule: As you get closer to the deadline, shift harder toward “Sure things.”

Step 3) Execute in this order: incur → document → submit

Most people do “buy stuff” and stop. That’s how money gets forfeited.

Use this order:

Incur the expense by your plan’s deadline (plan year end, or grace period end). (irs.gov)
Capture documentation immediately:
- Itemized receipt/invoice (not just a card slip)
- Date of service (for services)
- Provider/merchant name
- Description of the item/service
Submit claims early in the run-out window (don’t wait for “later”). Your plan can set the run-out deadline; after it passes, the claim can be out even if the expense was timely. (irs.gov)

If you get a denial: respond fast. Denials often mean “need better documentation,” not “never eligible.”

Pocket-card (save this)

Pocket-Card: The 20% Buffer Rule

Rule: Be at or below 20% of your yearly election with 2 pay cycles left in your plan year.
When to use: You’re unsure whether you have carryover or grace period; you want a simple safety buffer.
When not to: You already confirmed a grace period and have plenty of time, or your plan has very strict item rules that make last-minute spending risky.
How to adapt: If you have no carryover and no grace period, treat the buffer as 0% (aim to fully spend by the incur-by deadline). If documentation is hard, move earlier and stick to “Sure things.” (irs.gov)

Mini-scenarios (no currency, just clean math)

Scenario 1: You don’t know your plan’s carryover/grace rule

Yearly election = E
Remaining balance today = R
You have 2 pay cycles left

Use the rule: target R ≤ 0.20 × E by the start of the last 2 pay cycles.

If you end up having carryover: you likely fit under the maximum permitted carryover cap (though your employer may allow less). (irs.gov)
If you end up having no carryover: you still reduced the “forfeit blast radius.”

Safer version: If you truly can’t confirm the plan design, treat your target as R ≤ 0.00 × E by plan year end.

Scenario 2: You have a grace period, but paperwork is your bottleneck

You confirmed: grace period exists (up to the 15th day of the 3rd month after plan year end). (irs.gov)
Your risk: you’re slow at collecting invoices and details.

Simple move: Spend on items with one-step proof (clean itemized receipt) first, then services that require provider paperwork.

Why: A grace period extends incurring time, but it doesn’t magically fix the run-out submission deadline or your ability to substantiate. Run-out is still a real clock. (irs.gov)

Scenario 3: You’re close to the end and thinking about “creative” spending

Remaining = R
Time left is short
You’re tempted by borderline “wellness” items

Reality check: IRS guidance distinguishes medical care (diagnosis/treatment/prevention, affecting body function) from items “merely beneficial to general health.” The second bucket is where denials live. (irs.gov)

Safer version: Use a two-bucket finish:

80% of R: “Sure things” only
20% of R: “Maybe” items only if your plan portal explicitly lists them as eligible and you can document cleanly

Where the rule breaks (and what to do instead)

Break #1: Your plan has no carryover and no grace period

Then 20% is not a buffer. It’s still money at risk.

Safer version: The “Zero-by-Incur-By Rule”
Aim to reach R = 0 by the incur-by deadline (plan year end). (irs.gov)

Break #2: Your plan has carryover, but your employer’s carryover is smaller

IRS sets the maximum permitted carryover; employers can choose a lower cap or no carryover. (irs.gov)

Safer version: Use 20% as the first target, but if your plan’s cap is lower, use the plan’s number (express it as a percent of E for your own tracking).

Break #3: You’re buying things that are hard to substantiate

Even eligible expenses can be denied if you can’t prove what it was, when it was incurred, and that it’s medical care.

Safer version: Near the deadline, stick to:

clearly medical purchases/services
clean receipts/invoices
providers/vendors who can produce documentation quickly

Break #4: You confuse “incur-by” with “submit-by”

This is the #1 administrative faceplant:

You incur in time
You submit late
You forfeit anyway

Run-out periods exist, but are plan-set and must be followed. (irs.gov)

Safer version: Submit as soon as you have documentation—don’t wait.

Common mistakes (quick hits)

Mistake: Assuming all FSAs work the same way.
Fix: Confirm your plan’s carryover vs grace period vs neither. (irs.gov)
Mistake: Treating the run-out deadline as optional.
Fix: Put the submit-by date somewhere you’ll actually see it. (irs.gov)
Mistake: Last-minute “shopping cart medicine.”
Fix: Prioritize “Sure things,” and avoid general-health items that don’t meet the medical care definition. (irs.gov)
Mistake: Relying on a non-itemized receipt.
Fix: Get itemized proof (what, when, who, how much) so substantiation is easy.
Mistake: Forgetting that grace period extends incurring, not necessarily your ability to collect paperwork.
Fix: Keep documentation tight and submit early. (irs.gov)

A simple “spend-down menu” without guessing your eligibility

I’m not going to throw a massive list at you. That invites bad purchases.

Instead, use this filter:

Does it clearly fit IRS’s definition of medical care (diagnosis/treatment/prevention or affecting body function)? (irs.gov)
Can you document it cleanly with what your FSA administrator requires?
Can you incur it before the incur-by deadline and submit it before the run-out deadline? (irs.gov)

If any answer is “no,” it’s not a great end-game expense.

Bottom line

Don’t “try to spend.” Try to close the loop. Confirm your plan clocks, spend down in a smart order, and submit claims with clean proof.

If you remember only one thing: be at or below 20% of your yearly election with 2 pay cycles left—and if you can’t confirm your plan rules, act like carryover doesn’t exist.