Open enrollment season is underway, and millions of workers are making benefit elections that will affect their health care spending for the full year ahead.
Among the most consequential choices is the flexible spending account (FSA), a pretax tool with a use-it-or-lose-it rule that forfeits unspent balances at year-end.
New research from the Employee Benefit Research Institute (EBRI) studied more than 3.3 million accounts and found forfeitures continued through 2024 despite year-over-year declines.
The dollar amounts that workers leave behind remain large enough to erase much of the tax advantage these accounts provide.
Also Read: Vanguard reveals health account best for retirement
EBRI finds average flexible spending account forfeitures fell to a record low in 2024
Only 4 in 10 FSA holders surrendered unused funds in 2024, and those who lost money returned an average of $404 to their employers, EBRI reported. That average is down from $436 in 2023, the lowest inflation-adjusted figure since the institute began tracking these accounts in 2019.
Most participants tapped their accounts during the year, with 89% taking at least one distribution averaging $1,503, the report found. Average annual contributions rose modestly to $1,431 from $1,413 the year before, though inflation-adjusted contributions edged slightly lower, the data indicated.
Jake Spiegel, Senior Research Associate, Health and Wealth at the Employee Benefit Research Institute, said declining losses are encouraging, but gaps in participant awareness remain.
<strong>The decline in average forfeitures is encouraging. Still, the findings point to opportunities for employers to help workers better understand eligible expenses, plan deadlines and the features available to manage unused balances</strong>
A previous Money analysis pegged the 2023 nationwide total amount surrendered at roughly $4.5 billion, underscoring the scale of unspent balances across the market.
Younger FSA participants contributed less and forfeited more often
The EBRI data revealed a sharp generational divide, with age emerging as the strongest predictor of whether pretax health dollars go unused. Workers younger than 25 contributed an average of just $623, compared with $1,639 among those aged 45 to 54.
Two-thirds of account holders under 25 surrendered unused funds in 2024, the highest forfeiture rate of any age group. The data confirmed that only 36% of those aged 65 and older forfeited money, though they tended to lose larger dollar amounts when they did.
More Personal Finance:
Pay raises trail inflation so Ramit Sethi says, “Ask for $5,000”
Your home insurance deductible could be $20,000. Would you be ready?
Why your next car purchase will be an affordability nightmare
The report found that accounts with a carryover, a grace period, or both showed relatively small differences in average contribution levels.
Contributions ranged from $1,365 for accounts without a grace period to $1,489 for accounts with a grace period.
EBRI data shows younger workers contribute less to flexible spending accounts but forfeit unused funds more often, risking lost healthcare savings.Curly_photo / Getty Images
The IRS raised the 2026 health FSA limit to $3,400
The financial stakes of misjudging an FSA election are set to grow under new federal limits announced for 2026 plan years. The IRS Revenue Procedure 2025-32 increased the maximum annual employee pretax contribution to $3,400, up from $3,300 the prior year.
The IRS formalized the increase under the inflation index tied to the Affordable Care Act (ACA). For employers that permit unused balances to carry forward, the maximum carryover amount also increased to $680 from $660.
Employers that offer rollovers may set their threshold below the IRS cap, and neither a carryover nor a grace period is required. A worker who contributes the full $3,400 and leaves the balance unspent at the 2024 average rate would lose more than $400 in pretax dollars, as shown in IRS Revenue Procedure 2025-32.
Those forfeited pretax dollars could have covered copays, prescriptions, dental work and other eligible medical expenses under the participant’s plan.
Married couples with two FSA-eligible plans can each contribute up to $3,400, for a combined household limit of $6,800, under the IRS limit in Revenue Procedure 2025-32.
How to keep more of your FSA dollars during the next plan year
The EBRI report concluded that greater awareness of plan features and spending requirements could help workers use FSAs more effectively. Rollover and grace period provisions offer workers additional time to manage year-end FSA spending.
Leaving a small balance unspent does not necessarily erase the benefit of participating, because pretax savings can outweigh the lost amount.
Spiegel pointed to opportunities for employers to help workers better understand eligible expenses, plan deadlines, and features available to manage unused balances.
Spiegel said understanding how FSAs work is essential to maximizing their value. The report also identified website filters for FSA-eligible products as one emerging tool that could help reduce unused balances before plan-year deadlines close.
Related: The six-figure retirement health care myth: Why lifetime estimates distort your real budget