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The Online Advisor

October 2004

What's New in Financial Strategies

"Use it or lose it" rule may change

Many employers offer flexible spending accounts (FSAs) that allow employees to set aside money that can be used to pay expenses such as child care and medical bills with pre-tax dollars. As the rules currently stand, money set aside in an FSA must be spent every year or it is forfeited. So taxpayers must make accurate estimates of their expenses, or they lose some of the dollars they've put into their FSA.

Senate Finance Committee Chairman Charles Grassley is hoping to change the "use it or lose it" rule for FSAs. He has asked Treasury Secretary John Snow to revise the rules administratively and allow for at least some carryover to the next year of unspent FSA funds. Grassley feels Treasury has the authority to change the rules without Congress having to pass legislation.

Watch for a likely change, either from the IRS or from Congress, but remember that nothing is certain. If you have an FSA, you may still have to figure out next year's spending under the use it or lose it rules.

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