What occurs to unspent funds in a flexible spending account at year-end?

In a flexible spending account (FSA), unspent funds at the end of the plan year are typically forfeited. This is due to the "use-it-or-lose-it" rule that governs most FSAs. The purpose of the FSA is to encourage employees to use the funds for qualified medical expenses within the specified time frame. As such, if any funds remain unspent by the end of the year, they do not carry over to the next year, and employees cannot transfer or request refunds for these funds. This structure often incentivizes participants to carefully plan their healthcare expenditures within the allowable timeframe, making it crucial for employees to estimate their expenses accurately each year.