What is generally true about the distribution of funds in a flexible spending account?

In a flexible spending account (FSA), it is typically true that the funds must be used within the plan year. This means that any unspent funds at the end of the plan year are forfeited, a concept often referred to as "use-it-or-lose-it." The purpose of an FSA is to allow employees to set aside pre-tax dollars to pay for eligible medical expenses, thus encouraging individuals to utilize the funds within the designated period to promote proactive healthcare management.

Other options do not accurately reflect the nature of FSAs. For instance, money in an FSA cannot be withdrawn at will; it can only be used for qualified expenses. Additionally, although the contributions made to an FSA are pre-tax, they are not considered earned income and therefore not subject to income tax. Lastly, FSAs do not accumulate as savings over the years, contrasting with other accounts like health savings accounts (HSAs), which allow for fund rollovers and longer-term savings.