What Is a Flexible Spending Account (FSA)?

Healthcare expenses can take up a large chunk of a family’s budget, especially if one or more people have chronic issues. So the more strategies and tools a person has at their disposal to reduce medical costs, the better.

sxBut what can you do besides choosing a good insurance plan and crossing your fingers that you don’t get sick or injured?

Among other things, you can take advantage of a flexible spending account (FSA) at work. These accounts help you stretch your healthcare dollars by allowing you to spend on health-related expenses in a tax-advantaged way. (And depending on the FSA, they can also help you with other types of costs.)

Let’s review everything you’ll need to know about FSAs, including what you can and can’t use the funds for, contribution limits, and more.

Featured Financial Products

How Does an FSA Work?

Flexible spending accounts (FSAs) are a perk offered by some (but not all) employers that allow you to spend pre-tax dollars on certain goods and services. When people talk about flexible spending accounts, they’re usually referring to healthcare FSAs (HCFSAs), but there are other types of FSAs, which I discuss further below.

You can only participate in an FSA if your employer offers one. You fund the account with pre-tax dollars, which means money is contributed from your paycheck before taxes are taken out. (Employers may contribute, but they’re not required to do so.) 

Whenever medical expenses pop up that aren’t covered by your health insurance, you can submit a claim, with proof, to the FSA (through your employer). After that, you are reimbursed for the costs with the money in your flexible spending account.

FSAs do have some limitations, however. Among them:

• You must spend money on qualified expenses; if you spend on an unqualified cost, you must repay the plan.
• They have tight contribution limits.
• They are “use-it-or-lose-it”: Funds don’t carry over from one year to the next.

How Can You Spend FSA Funds?

Some of the expenses you can pay for with FSA funds include, but aren’t limited to:

• Deductibles
• Copayments
• Prescription medications
• Over-the-counter (OTC) medicines with a doctor’s prescription
• Insulin
• Medical equipment, such as bandages or crutches
• Dental treatments that are preventative or alleviate dental disease (not teeth whitening)
• Eye exams and medically necessary glasses
• Hearing aids

You can see a more comprehensive FSA eligibility list here.

Related: 14 Ways to Lower Medicare Costs in Retirement

How Can’t You Spend FSA Funds?

You can’t use your FSA money to pay for everything that falls under the healthcare umbrella. Here are some items that you might assume are permissible costs for flexible spending accounts but aren’t:

• Insurance premiums
• Gym memberships or fitness programs (except those prescribed for specific conditions)
• OTC medications without prescriptions (exceptions apply)
• Vitamins and supplements (except those prescribed for specific conditions)
• Personal care items, such as toothpaste
• Long-term care services

Also, you can’t use a healthcare FSA at all if you have a Marketplace plan.

Related: Healthcare Costs in Retirement [Amounts & Types to Expect]

Is an FSA the Same Thing as an HSA?

You also can’t contribute to a healthcare FSA if you have a health savings account (HSA).

Flexible spending accounts and health savings accounts have similar purposes but have some important differences. For instance, unused HSA funds can be rolled over indefinitely but FSA funds typically can’t, and HSA plans require the account holder to be enrolled in a high-deductible health plan (HDHP), while an FSA can be used with different kinds of health insurance plans.

You can get a more in-depth from our story about FSAs vs. HSAs, but here is a breakdown of the most important points:

While you can’t simultaneously contribute to an HSA and an HCFSA, you can overlap an HSA and two other types of flexible spending accounts: the dependent care FSA and the limited-purpose FSA.

Related: 8 Best Health Savings Account (HSA) Providers [2026]

Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.

What Is a Dependent Care FSA?

Dependent care FSAs (DCFSAs) allow employees to put aside tax-free money to be used toward dependent-care costs. These expenses might include (but aren’t limited to):

• Daycare
• After-school care (under age 13)
• Care for disabled and/or elderly tax dependents

To be eligible for a DCFSA, you and your spouse must be employed, looking for work, or a full-time student.

Related: Financial Caregiving: How to Manage a Loved One’s Finances

What Is a Limited-Purpose FSA?

A limited-purpose FSA (LPFSA) is generally used for eligible dental and vision expenses, though in some cases, you might also be able to use your LPFSA to pay for qualified medical expenses, too.

To contribute to a limited-purpose FSA, you typically must be enrolled in a high-deductible health plan and have an HSA.

Related: How to Use Your HSA for Retirement [Tax-Efficient Investing Tool]

What Are the 2026 FSA Contribution Limits?

Here are the FSA contribution limits for 2026:

• Healthcare FSAs: $3,400
• Dependent care FSAs: $7,500 per household, $3,750 per spouse if married filing separately
• Limited-purpose FSAs: $3,400

Should you max out your FSA? Well, again, these are use-it-or-lose-it funds, so if you don’t use the money in your FSA within the plan year, it’s wasted. However, some employers might offer one (not both) of the following two options:

• A grace period of up to 2 ½ extra months to use the remaining money
• The ability to carry over up to $680 per year to use in the following year

Still, it’s usually not recommended to fund an FSA with more money than you expect to use within the set time period.

Related: Average Early Retirement Health Insurance Premiums

Featured Financial Products