Which statement best describes a Flexible Spending Account (FSA) in relation to its funds at year-end?

• A. Funds can roll over indefinitely
• B. Unused funds are generally forfeited at year-end
• C. Funds earn interest annually
• D. Funds can be withdrawn tax-free for any expense

Answer: (B)

Flexible Spending Accounts are pre-tax funds set aside to pay for eligible medical expenses, but they operate on a use-it-or-lose-it rule. This means any money left unspent by the end of the plan year (or grace period, if the plan offers one) is generally forfeited back to the employer. That’s why the statement about unused funds being forfeited at year-end is the best description. Some plans may allow a small rollover or a brief grace period, but those are exceptions rather than the norm. FSAs don’t typically earn interest, and withdrawals are restricted to reimbursements for eligible expenses rather than being available for any expense tax-free.