Grace Period
Grace period is defined as an extended period of coverage that comes at the end of every plan year, and it allows an account holder extra time to incur the expenses for using their remaining savings account balance after the closing of the plan year. This period is typically for two and a half months following the end of the plan year, although the employers decide if the account holder will get a grace period.
The account holders must use any of the remaining funds that are leftover from the last plan year. If the funds do not get used during the grace period, they stand forfeited. It is important for any employee to make sure and check with their benefits administrator or human resource representative in the company to get a better understanding of the grace period.
Run Out Period
Run out period is defined as a timeframe during the plan year which allows the account holder to file their claims for any expenses that had been incurred from their account in the past plan year. This timeframe for a run out period is determined by the employer, but it is possible for this period to last a total of ninety days after the end of the plan year. In case an account holder has a grace period, it will overlap with the run out period as well. It is very important to note that all the expenses which are incurred during the grace period should be claimed before the run out period gets over.
Any amount that is remaining in the savings account post the end of the run out period, which cannot get carried over into the next year, stands to be forfeited. The account holder must carefully decide how much they should contribute so that they do not lose any money, especially if they have less medical expenses and their employer does not want to offer any grace period or carryover for the account.
Difference between Grace Period and Run Out Period
Both grace period and run out period perform a very important role for the account holders and their employers. These two measures have helped to increase the transaction limits for the savings accounts across the world at a rapid pace. However, it must be acknowledged that there are a number of areas of difference between the grace period and run out period, and we should focus on those points below to get a wider perspective of these two instruments:
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Grace period is defined as an extended period of coverage that comes at the end of every plan year, and it allows an account holder extra time to incur the expenses for using their remaining savings account balance after the closing of the plan year. |
Run out period is defined as a timeframe during the plan year which allows the account holder to file their claims for any expenses that had been incurred from their account in the past plan year. |
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The grace period is typically for two and a half months following the end of the plan year. |
This timeframe for a run out period is determined by the employer, but it is possible for this period to last a total of ninety days after the end of the plan year. |
Conclusion
There are a number of points of difference between the grace period and run out period. But both of them perform a very crucial role in the functioning of the banks, and they also provide relief to the account holders as well. It then becomes important to understand that many individuals and corporations are willing to use these instruments to maximise their financial well being. These financial instruments also have a part to play in the overall improvement in the overall volume of banking transactions across the board.
Also See:
- Difference Between Fixed Capital Account and Fluctuating Capital Account
- Difference Between Final Goods and Intermediate Goods
- Difference Between Cash Basis and Accrual Basis of Accounting
- Difference Between Bill of Exchange and Promissory Note
- Difference Between Fayol and Taylors Theories of Management
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