Although FSA accounts are compatible with any health plan, HSAs require simultaneous enrollment in an HSA-eligible, high-deductible health plan (HDHP).
If your health coverage changes, you may change from an FSA in one plan year to an HSA in the next, or vice-versa. The IRS has specific rules that apply to this type of account transition.
FSA to HSA
Under IRS rules, you cannot actively enroll in and contribute to a General-Purpose FSA account and an HSA account simultaneously.
Because of that, when switching from an FSA to an HSA it’s best to make a “clean break” by spending down your FSA balance to $0 before the HSA plan year begins. However, if your FSA account has a balance and you have a grace period or carryover, there are options.
FSA to HSA: Grace Period and Contributions
If your FSA plan offers a grace period and you have a balance, you must wait until the end of the FSA grace period to make any HSA contributions. Even if you spend your leftover FSA balance before the grace period ends, you must wait until the entire grace period expires.
FSA to HSA: Carryover and Contributions
Your options for FSA carryover depend on account status on the last day of the FSA plan year. There are three alternatives:
- Your FSA plan has carryover, but your account balance is $0 – Since you depleted your FSA by year-end, you can start contributing to your HSA immediately after the new plan year begins.
- Your FSA balance is carried over into the new plan year – Carrying over any amount on an unrestricted basis has the same effect as re-enrolling in a General-Purpose FSA. This will disqualify you from contributing to an HSA until the end of the FSA plan year.
- Your FSA balance is carried over into a Limited-Purpose FSA Account – Carrying over from a General-Purpose FSA directly into a Limited-Purpose FSA has the same effect as reducing your former FSA account balance to $0. Since a Limited-Purpose FSA (which applies only to dental and vision expenses) can be held simultaneously with an HSA account, you can start contributing to your HSA immediately.
HSA to FSA
What happens when you switch from an HSA to a General-Purpose FSA? You cannot make any new contributions to your HSA account once the FSA plan year begins. However, you still own the HSA account and can continue to spend its balance on qualified healthcare expenses.
Note: What happens if you have an HSA account and change to a health plan that is not HSA-eligible? You cannot make additional contributions to the HSA once the new coverage begins. However, you still own the HSA account and can continue spending its balance on qualified expenses.
Contact your benefits administrator for more information on FSA and HSA plans.
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