FSA + HSA + last month rule = confused

[Guest ConfusednLost]

I’ve got an interesting (and a bit confusing) question for everyone. Here’s the background.

1) I was on an EPO from Jan to Oct 2013 and on HDHP from Nov 2013 to Dec 2013.

2) I have an FSA for whole of 2013, with balance of $100 at end of 2013. As of now, I still have an outstanding bill for $150 for 2012 expenses which needs to be claimed. This should make my FSA balance 0.

3) The FSA has no grace period, but in 2014, the new rules permits FSA carry forward of $500.

4) The FSA became a limited FSA from Nov 2013 onwards despite the fact I have not contributed to a HSA. (but the HSA account was setup automatically)

5) From Jan 2014 onwards, I’ve started contributing to the HSA via payroll.

Q1) Can I utilize the last month rule to contribute the full $3250 to my HSA for 2013? From what I have read (extensively) I know I should be able to, but yet, contributing seems to contradict the rule that I can’t contribute to HSA if I have a FSA for the year.

Q2) If not, would I be able to use the last month rule once I've completed the FSA claims for 2013 and fully deplete my FSA to 0 today?

Q3) If I didn’t contribute to a HSA in 2013, will my FSA still be limited to dental and optical regardless?

Been puzzling me to no end... Any tax/IRS/HSA experts care to share your thoughts?

[masteff]

You're confused because you kept reading past "no HSA if covered by a Health FSA". You state you had a health FSA for all of 2013. Nothing else pertains after you find a fact that causes you to not be eligible. However you should talk to your HR or Benefits department to see if they have reached a conclusion on the topic (after all, they offered you an HDHP and in 2014 a limited FSA so they're clearly trying to comply w/ the relevant rules).

And the years in your post seem to be messed up. You have a number of 2012's which I presume is because you were reading examples from somewhere else while trying to write this. Perhaps edit your post to fix the years.

[Guest ConfusednLost]

I've edited the years, thanks for pointing it out. I was confused with the new year and all.

So to reiterate what you're saying... That the only point which matters is I won't be able to contribute to HSA since I had FSA for whole of 2013, regardless of the "last month rule".

I've tried to enquire with my HR Benefits team but I can't get any competent enough to opine. They keep sending me the FSA (not HSA) FAQ sheet.

I guess my only hope of utilising the "last month rule" is if my FSA is was converted to a limited FSA (which it appears to be). Am I correct?

[masteff]

4) The FSA became a limited FSA from Nov 2013 onwards despite the fact I have not contributed to a HSA. (but the HSA account was setup automatically)

Okay, I missed that it changed to a limited FSA the first time thru. Your answer is in IRS Notice 2004-50 Q&A-59. It appears consistent with Notice 2005-86. I'll let you reach your own conclusion on how it applies to your specific situation.