HSA vs. FSA: Rollover, Carryover, and Use-It-or-Lose-It Rules

The core rollover difference between an HSA and an FSA is simple: money in a Health Savings Account rolls over indefinitely and belongs to you, while money in a Flexible Spending Account is generally forfeited at the end of the plan year. That single rule shapes everything else about how the two accounts feel to use. An HSA balance can sit and grow for decades. An FSA balance you don’t spend by year-end usually goes back to your employer, with only narrow exceptions built into the plan.

What Happens to Unused FSA Money at Year-End

Flexible Spending Accounts run through your employer’s cafeteria plan under federal tax law, and the default rule is blunt: money left in your health care FSA at the end of the plan year is forfeited.¹ You don’t get it back as cash. It doesn’t automatically slide into next year’s balance. The forfeited money goes to your employer, who can apply it to plan administration costs, reduce future employee contributions, or return it to participants on a uniform basis.

Your employer cannot single you out and refund your specific unused balance. The money is pooled and handled according to the plan document. This is what catches first-year FSA participants: the tax savings on contributions are real, but so is the risk of losing what you don’t spend.

Grace Period

Some employers soften the deadline by adding a grace period of up to two and a half months after the plan year ends. If your plan runs on a calendar year, that gives you until March 15 to incur new eligible expenses and drain the leftover balance.¹ The grace period lets you spend on new care during that window, not just submit old receipts. Anything still sitting in the account after the grace period expires is forfeited.

Carryover

The alternative is a carryover provision. For the 2026 plan year, your employer can let you carry up to $680 of unused FSA funds into the following year.² Anything above that threshold is still forfeited. The carryover doesn’t count against your next year’s contribution limit, so you get the full benefit of both the rolled-over amount and a fresh election.

There’s a catch. Your employer must pick one softener or the other. Federal rules prohibit offering both a grace period and a carryover within the same plan.¹ Many employers offer neither, so check your plan documents during open enrollment rather than assuming either option exists.

Run-Out Period

Don’t confuse the grace period with a run-out period. A run-out period, typically around 90 days after the plan year ends, gives you extra time to submit claims for expenses you already incurred during the previous plan year. It doesn’t let you rack up new charges. If you had a December doctor visit but haven’t filed the receipt yet, the run-out period covers that. If you want to schedule a January procedure using last year’s funds, only a grace period helps.

How HSA Funds Roll Over Indefinitely

Health Savings Accounts work on a different model entirely. The statute defines an HSA as a trust set up exclusively to pay qualified medical expenses, and it includes a critical protection: your interest in the account balance is nonforfeitable.³ No employer, plan administrator, or government agency can take your HSA funds away. Every dollar you contribute rolls forward automatically at the end of each year, with no cap on how much can carry over and no deadline to spend it.

That makes an HSA function more like a retirement account than a spending account. You can contribute during your working years, let the balance accumulate, and tap it decades later for medical costs in retirement. There’s no “use it” pressure distorting your healthcare decisions.

Tax-Free Investment Growth on the Rollover Balance

Because the balance persists, it can also be invested. HSAs receive a triple tax advantage that FSAs can’t match: contributions reduce your taxable income, investment earnings grow without being taxed, and withdrawals for qualified medical expenses are completely tax-free.¹ Most HSA custodians let you invest your balance in mutual funds or other securities once you’ve built up a cash cushion. Some require a minimum cash balance before investing; others have no minimum at all. Over a 20- or 30-year horizon, that tax-sheltered growth can turn a modest annual contribution into a significant medical reserve.

2026 Contribution and Carryover Limits Side by Side

The annual limits for both accounts adjust for inflation. Here’s where things stand for the 2026 plan year:

HSA, self-only coverage: $4,400
HSA, family coverage: $8,750
HSA catch-up contribution (age 55 or older): an additional $1,000 per person
FSA employee contribution limit: $3,400
FSA maximum carryover into 2027: $680

The HSA limits come from the IRS’s annual inflation adjustments for high-deductible health plans.⁴ The $1,000 HSA catch-up is set by statute and doesn’t move with inflation. If both spouses are 55 or older and each has their own HSA, each can make the catch-up separately.

Run the numbers on the forfeiture risk. If you max an FSA at $3,400 and only spend $2,500 on care, up to $720 of the remainder disappears (the amount above the $680 carryover cap, assuming your employer even offers a carryover). With an HSA, the unspent $900 simply stays in your account and keeps growing.

What Happens to Each Account When You Leave a Job

Rollover isn’t only about the calendar. It also matters when you change employers, and this is where the two accounts split most sharply.

Your HSA belongs to you personally. If you quit, get laid off, or retire, the balance stays with you. You can keep the same custodian, transfer the funds to a new provider, or let the money sit and grow. Trustee-to-trustee transfers between HSA custodians can be done without limit. If you instead take a distribution and redeposit it into a new HSA yourself, that rollover is limited to once every 12 months.³

FSA portability is essentially nonexistent. Your employer sponsors the FSA, and coverage typically ends when your employment ends. Any remaining balance is forfeited unless you elect COBRA continuation coverage, which lets you keep the FSA active by paying the full cost of the benefit plus up to 2% for administrative fees.⁵ In practice, COBRA for an FSA rarely makes financial sense unless you have a large balance and imminent medical expenses, because you’re paying premiums to access money you already contributed.

Can You Have Both an HSA and an FSA

A common misconception is that you have to pick one or the other. If you have an HSA, you can also enroll in a limited-purpose FSA, which covers only dental and vision expenses.⁶ That lets you use FSA dollars for routine dental cleanings, eyeglasses, and contact lenses while preserving your HSA balance for larger medical costs or long-term savings. The limited-purpose FSA still follows use-it-or-lose-it, so keep contributions modest and predictable.

You cannot pair an HSA with a general-purpose health care FSA. A general-purpose FSA covers the same broad range of medical expenses as an HSA, and the IRS treats that overlap as disqualifying for HSA contributions. If your employer only offers a general-purpose FSA, you’ll need to choose between the FSA and HSA eligibility.

The practical takeaway on rollover: contribute to an FSA only what you’re confident you’ll spend within the plan year (plus any grace period or carryover your employer allows), and route longer-term medical savings to an HSA where the balance is yours to keep.

1
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
2
FSAFEDS. New 2026 Maximum Limit Updates
3
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
4
Internal Revenue Service. Rev. Proc. 2025-19
5
U.S. Department of Labor. Continuation of Health Coverage (COBRA)
6
FSAFEDS. Limited Expense Health Care FSA