Q. Are the new rules for flexible spending accounts retroactive to 2013? M.R., Middletown, R.I.
A. It depends. Under IRS Notice 2013-71, the “use-it-or-lose-it” requirement for health care flexible spending accounts (FSAs) is relaxed. Generally, if a participant doesn’t use the funds in an FSA by the end of the plan year, the individual forfeits the remainder. Previously, the IRS approved use of a 2½-month grace period. Now it says employers can amend their health care FSA plans to permit a participant to carry over up to $500 to the next plan year, but then the grace period isn’t allowed. If your company offered the grace-period deal for 2013, it cannot offer the $500 carryover deal for leftover balances from the 2013 plan year.
Tip: To implement the new rule in 2014, amend the plan and notify employees.