How much should I put in my FSA? Size it from last year's ledger

Open enrollment season is here, and with it the one question on the benefits form that people guess at more than any other: how much should I put in my FSA? Pick too little and you pay tax on medical bills you knew were coming. Pick too much and the money you did not spend can simply disappear at the end of the plan year.

I read a lot of ledgers, and the useful thing about this question is that most of the answer is already in last year's transactions. Below is how to turn them into an election, with a worked example and the one number most people never check: the point at which an FSA stops saving you money.

What a health FSA is, in one paragraph#

A health flexible spending account lets you set aside part of your salary, before tax, to pay for eligible medical costs: copays, prescriptions, dental and vision costs, many over-the-counter items. You choose an amount for the year during open enrollment, your employer takes an equal slice from each paycheck, and you claim the money back as you spend it. Because the contributions skip federal income tax and Social Security and Medicare tax (and state income tax in most states), every dollar you spend through the account costs you less than a dollar from your pay.

The rules that decide the number#

Three rules matter more than anything else when you choose your election.

There is a cap, and the 2027 figure is not out yet#

For 2026 the limit is $3,400 per employee, with a carryover cap of $680, set in IRS Revenue Procedure 2025-32 and released on 9 October 2025. The IRS had not published the 2027 limit as of late October 2026; one tracker of the annual adjustments still listed it as pending on 24 October 2026, with the release expected between mid-October and November. Your employer's enrollment page will show the cap that applies to your plan, and it can be lower than the legal maximum.

The cap is a ceiling, not a target. Most people should elect well below it.

Unspent money can be lost#

This is the "use it or lose it" rule. Your employer can soften it in one of two ways, but not both:

• a carryover, which lets a limited amount of unused money roll into next year, or
• a grace period of up to two and a half months after the plan year ends to spend the remaining balance.

Some plans offer neither. Check which one yours has before you pick a number, because it changes how much cushion you can afford.

The full amount is available from day one#

You pay in evenly across the year, but your whole election is usually available from the first day of the plan year. That makes an FSA useful for a large planned cost early in the year, such as dental work in February. It also means the election is hard to change mid-year unless you have a qualifying life event.

One more practical point: in most plans your election does not roll forward automatically. If you skip the form, you usually get nothing for next year.

Size it from your ledger in three layers#

Think of your election as three layers, from most certain to least.

1. Predictable costs. Things that happen every year at roughly the same price: regular prescriptions, routine dental cleanings, an annual eye exam and contact lenses, the copays for check-ups you always have. These go in at full value.
2. Planned treatment. Things you know are coming next year because someone has told you: a crown your dentist has quoted, new glasses, a course of physiotherapy. Put these in at the quoted out-of-pocket amount, after insurance.
3. A cushion for surprises. Urgent care, a sprained ankle, an unexpected prescription. You cannot predict these, so look at what they cost you over the last two or three years and put in only part of the average.

The first layer is where a ledger earns its keep. If your health spending sits in its own category, you can pull twelve months of it in a minute instead of reconstructing it from receipts. If your medical costs are lumpy, the same approach as a sinking fund for irregular expenses applies: work from the yearly total, then divide.

A worked example#

Here is one person's year. They are paid twice a month, 24 paychecks a year, and their plan has no carryover and no grace period.

Layer 1, predictable costs from last year's ledger:

• a regular prescription at $35 a month: 12 × $35 = $420
• annual eye exam and a year of contact lenses: $320
• two dental cleanings at a $60 copay each: $120
• four doctor visits at a $40 copay: $160

That is $420 + $320 + $120 + $160 = $1,020.

Layer 2, planned treatment. Their dentist has quoted a crown for next spring, $780 out of pocket after insurance.

Layer 3, cushion. Unplanned medical costs over the last three years were $360, $480 and $240, an average of $360. They put in half: $180.

Election: $1,020 + $780 + $180 = $1,980, or $1,980 ÷ 24 = $82.50 per paycheck.

What it saves#

Say they are in the 22% federal bracket and pay the usual 7.65% Social Security and Medicare tax. Each FSA dollar saves 22% + 7.65% = 29.65% (ignoring state tax for simplicity).

• Tax saved on $1,980: $1,980 × 0.2965 = $587.07
• Real cost to take-home pay: $1,980 − $587.07 = $1,392.93, or about $58.04 less per paycheck instead of $82.50

The break-even point#

Here is the number most people skip. Because the tax saving is 29.65%, you come out ahead as long as you spend more than 70.35% of what you elect. For a $1,980 election, that is $1,980 × 0.7035 = $1,392.93, the same figure as the real cost above. Spend more than that and the FSA has paid off. Spend less and you would have been better off without it.

This is what different years look like for this election, against the same person electing the $3,400 maximum:

In the quiet year, they lose $960 but saved $587.07 in tax, so they end up $372.93 worse off than with no FSA. Postponing the crown costs $780 against the same $587.07 saving, $192.93 worse off. Electing the maximum is worse still: $3,400 × 0.2965 = $1,008.10 saved, minus $1,420 lost, leaves them $411.90 behind, even in a year that went exactly to plan.

With a carryover plan the picture changes. At the 2026 cap of $680, the postponed-crown year would lose only $780 − $680 = $100, and the person would still be $487.07 ahead. That is why the plan's rules decide how big the cushion can be.

Adjusting the method for your situation#

If your plan has a carryover or grace period#

You can afford a larger cushion. A reasonable approach is to let layer 3 grow until the unused amount in a quiet year would still fit inside the carryover. Above that, every extra dollar is a bet.

If you have a high-deductible plan and an HSA#

You generally cannot contribute to a health savings account and a regular health FSA in the same year. Some employers offer a limited-purpose FSA for dental and vision costs alongside an HSA, so the same three layers apply, just with dental and vision only.

If your premiums are rising too#

An FSA covers out-of-pocket costs, not premiums. If your premium is going up next year, budget for that separately; the guide to budgeting for a health insurance premium increase works through it. And keep the FSA separate from your emergency fund: the FSA is for costs you expect, the emergency fund is for the ones you do not.

Spend down before the deadline#

Put the plan year's end date (or grace period end) in your calendar now, with a reminder a couple of months before. If you have a balance left, eligible purchases like prescription glasses, a first-aid kit or sunscreen can use it up. Check your plan's list before buying.

This is general education about budgeting and tax-advantaged accounts, not advice about your situation. Your plan document, your HR team or a tax professional can confirm what applies to you.

What to ask an advisor about it#

In Azno, your transactions, categories and recurring bills sit in one ledger, so the three layers become questions rather than an afternoon with old receipts:

• "What did I spend on medical, dental and vision over the last 12 months, and which of those charges repeat every month or every year?" That is your layer 1, measured from your own entries.
• "If I elect $1,980 for my FSA and my tax saving is 29.65%, what's my break-even spending, and how does that compare with my last three years of health costs?" You see how often you would have come out ahead.
• "Set up a recurring entry of $82.50 per paycheck for my FSA and a reminder two months before the plan year ends." This comes back as a proposal; nothing changes until you approve it.

If you want to see your own health spending before your enrollment window closes, create a free account and import a year of transactions. The right election is usually smaller than the maximum and larger than a guess.