FSA money does not roll over to a new job, and you cannot move it into an IRA or other retirement account
A Flexible Spending Account (FSA) is tied to your employer's plan, not to you. When you leave that job, your FSA ends. Any money left in the account on your last day of employment is forfeited — your employer keeps it. This is called the "use-it-or-lose-it" rule, and it applies to almost all FSAs, with one narrow exception for dependent care accounts.
The money in your FSA is also not tax-deductible income that you can carry forward. It does not transfer to a new employer's FSA, does not move into an IRA, and does not convert into a taxable distribution you can spend on anything. Once your employment ends and the plan year closes, that balance is gone.
The only way to recover unspent FSA money is to spend it before you leave. If you know your job is ending mid-year, you have a window to submit claims for may be able to access expenses you have already paid out of pocket.
Key Takeaways
- FSA balances do not roll over when you change jobs; unspent money is forfeited to your employer under the use-it-or-lose-it rule.
- You cannot transfer FSA funds to an IRA, 401(k), or any other retirement or savings account.
- If you are leaving a job mid-year, you can submit claims for may be able to access medical or dependent care expenses you have already paid before your employment ends.
- Dependent care FSAs have a limited grace period (usually 2.5 months into the next plan year) to spend remaining funds, but health care FSAs do not.
- When you start a new job, you can open a new FSA with that employer if the plan offers one, but it is a separate account with a separate annual limit.
Why FSA money cannot follow you to a new job
An FSA is a cafeteria plan benefit owned and administered by your employer. The IRS treats FSA funds as part of your employment compensation for that specific year and that specific employer. Because the money is tied to the employer's plan document and tax year, it cannot be transferred, rolled over, or converted into another account type.
This is different from a 401(k) or traditional IRA, which are individual accounts in your name that you own regardless of where you work. An FSA exists only while you are employed and enrolled in that employer's plan. The moment your employment ends, your right to that account ends too.
The use-it-or-lose-it rule is a federal requirement under IRC Section 125. It prevents employees from accumulating large FSA balances year after year and using them as a tax shelter. In exchange for the tax break on FSA contributions, you accept that unspent money reverts to the employer.
What happens to your FSA balance when you resign or are laid off
When your employment ends, your FSA coverage typically stops on your last day of work or at the end of the month, depending on your employer's plan. Any balance remaining in the account at that point is forfeited. You do not receive a refund, and the money does not appear on your final paycheck.
Some employers allow a short grace period — usually 30 to 90 days after the plan year ends — to submit claims for expenses incurred during the plan year. If you have receipts for medical or dependent care expenses you paid out of pocket before your employment ended, you can submit those claims during the grace period and draw down your balance. After the grace period closes, any remaining funds are gone.
If you are laid off or fired, the same rule applies. There is no exception for involuntary job loss. Your FSA ends when your employment ends.
The one exception: dependent care FSA grace period
Dependent care FSAs (used to pay for child care, adult day care, or elder care) have a limited grace period that health care FSAs do not. After the plan year ends, you have until 2.5 months into the next plan year to submit claims for expenses incurred in the prior year. This gives you a small window to spend down a dependent care FSA balance after you leave a job.
For example, if your plan year ends on December 31 and you leave your job in November, you can submit dependent care claims through mid-March of the following year for expenses you paid in December or earlier. Health care FSAs do not have this grace period — claims must be submitted by the end of the plan year or shortly after, depending on your employer's policy.
Even with the grace period, you can only claim expenses that are may be able to access under the plan and that you actually incurred. You cannot claim future expenses or expenses unrelated to dependent care.
How to protect unspent FSA money before you leave
If you know you are leaving a job and have money left in your FSA, spend it on may be able to access expenses before your last day. For a health care FSA, may be able to access expenses include copays, deductibles, prescription medications, dental work, vision care, and medical equipment. For a dependent care FSA, may be able to access expenses are child care, preschool, summer camp, and adult day care.
You do not have to have already received the service or product. You can pay out of pocket for an may be able to access expense and then submit a claim to your FSA to be reimbursed, as long as the expense was incurred before your employment ends. For example, you can pay for a dental cleaning scheduled for next month, submit the receipt to your FSA now, and receive reimbursement before you leave.
Gather receipts and invoices for any expenses you have already paid. Contact your FSA plan administrator (usually listed on your benefits website or ID card) and ask about the claims submission deadline and grace period. Submit claims as soon as possible — do not wait until your last day.
Opening a new FSA at your next job
When you start a new job that offers an FSA, you can enroll in that employer's plan during your benefits orientation or open enrollment period. This is a completely separate account with a separate annual contribution limit. For 2024, the limit is $3,300 for health care FSAs and $5,000 for dependent care FSAs (these limits change annually).
Your new FSA does not carry over any balance from your previous employer's FSA. You start fresh. If you left your old job mid-year, your new FSA will have a different plan year and different contribution limit, depending on when you enroll and when your new employer's plan year begins.
If your new employer does not offer an FSA, you have no way to recover the money you left behind in your old FSA. This is another reason to spend down your FSA balance before you leave a job.
COBRA and FSA: what you need to know
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows you to continue health insurance coverage after you leave a job, but it does not extend your FSA. You cannot continue contributing to or drawing from your old employer's FSA under COBRA. Your FSA ends when your employment ends, period.
If you enroll in COBRA for health insurance, you are still responsible for paying your share of the premium, but you cannot use an FSA to pay those premiums. You would need to pay them with after-tax dollars or use a Health Savings Account (HSA) if you are enrolled in a high-deductible health plan.
Frequently Asked Questions
Can I roll my FSA into an IRA or 401(k)?
No. FSA funds cannot be rolled over, transferred, or converted into any other account type, including IRAs, 401(k)s, or Health Savings Accounts. An FSA is a use-it-or-lose-it account that ends when your employment ends.
What if I have a medical expense scheduled after I leave my job?
If the expense is incurred before your employment ends, you can submit a claim and be reimbursed from your FSA. If the expense occurs after your employment ends, you cannot use your old FSA to pay for it. You would need to pay out of pocket or use a new FSA at your next job if available.
Can my employer let me keep my FSA balance if I resign?
No. The use-it-or-lose-it rule is a federal requirement, and employers cannot override it. Even if your employer wanted to let you keep the money, they are not allowed to do so under IRS rules.
Do I get a refund of my FSA contributions when I leave?
No. FSA contributions are pre-tax deductions taken from your paycheck. Once deducted, they belong to the plan. Any unspent balance is forfeited; you do not receive a refund or a credit toward your final paycheck.
Can I claim expenses from after I leave if I have receipts?
No. You can only claim expenses that were incurred while you were employed and enrolled in the plan. Expenses incurred after your employment ends are not may be able to access, even if you have receipts.