Which statement describes the use-it-or-lose-it rule for FSAs?

• A. Funds roll over indefinitely to the next plan year.
• B. Funds may be rolled over to the next plan year up to a limit.
• C. Funds must be used for qualified medical expenses within the plan year or are forfeited.
• D. Funds can be converted to cash at year-end.

Answer: (C)

FSAs use pre-tax dollars to cover eligible medical expenses within the plan year. The use-it-or-lose-it rule means you must use the available funds for qualified medical expenses during that plan year, or the remaining balance is forfeited. Some plans may offer a grace period after year-end or a limited rollover to the next year, but those are plan-specific exceptions, not the general rule. Statements suggesting indefinite rollover or cash-out at year-end don’t reflect how FSAs typically operate.