Changing jobs? Don't lose your FSA dollars

Changing jobs? Don't lose your FSA dollars »Play Video
SEATTLE -- When it comes to money in flexible spending accounts, most employees know they must use the benefit or lose at the end of the year.

But there's another gotcha -- get laid off or change jobs, and you can lose it all.

FSAs are great way to stretch your health care dollars. You set aside a pile of money tax-free that you use to pay for medical bills.

But you can lose a bundle at the end of your employment, whether you leave on your own or get fired.

Ellen Braun is in sales. Earlier this year, she changed jobs. She figured the money in her flexible spending account would help pay her medical bills until her new benefit program kicked in. After all, it was her money.

Then came the big surprise.

"Went in to pick up a prescription and the card that they give you to use like a debit card was declined," she said.

Braun says if she'd known about it, she would've handled her flex spending differently.

"Yes, I would have ordered contacts. I would have done anything," she said. "Just felt like it was money in the bank, so didn't worry about it. "

Losing that money, Braun says, made her feel like she'd "been robbed."

"It's earned. You've earned the money and then it goes back to some fund that you never knew about," she said.

Braun searched online, and found out IRS rules require her employer to keep that money. It doesn't go to the feds; the company gets it all.

"If you expect to change jobs or you feel that you may be let go, it's important to use the money in your flexible spending account that you've deposited year-to-date," said Greg McBride, senior financial analyst at "Otherwise, any money that's still in that account on the day you're let go may well be forfeited."

You can buy yourself a bit more time if your soon-to-be ex-employer offers what's called a COBRA account, and you sign up for it. That keeps your FSA dollars alive.

And I've discovered that every dime you set aside for your FSA account is available the day the plan begins, even though your employer hasn't withheld all that money from your paycheck yet.

So if you can come up with qualifying medical expenses to tap your yearly total before your employment ends, the FSA administrator is required to pay them all. It is a legal way to beat the system.