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Changing from FSA to HSA mid year


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We are in the midst of rearranging our health benefits at our company from an FSA to a HDHP HSA. We have received conflicting information as to whether or not this can be accomplished in mid year. Our plan is to stop the FSA and then implement the HSA without overlap. Can this be done?

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Yes. That is because a cafeteria plan with health flex accounts may be terminated mid-year, causing a short plan year, provided there are 'valid business reasons'. There are issues that go along with it, but it may be done. Prop Treas Reg § 1.125-5(e)(1) and -1(d). I would think that if an employer has a valid business reason to change the plan year to run coincident with an insurance policy, coverage under which is offered as a cafeteria plan, you'd have a valid business reason for stopping mid-year and having a short plan year where you are doing to accommodate a different benefit offering.

Also, the HSA contribution rules apply on a month by month basis. So beginning with the first full calendar month that there is no health flex account coverage that would disqualify the covered employee from an HSA contribution, there could be an HDHP HSA arrangement.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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  • 7 months later...
Guest James Simon

actually, if you read your contract with your company, you can all campaign for a change in benefits Whenever you like changing it, as fit to your own preference.

goodluck!

James

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James

I am assuming that your post was not just spam.

The insurance contract terms have nothing to do with cafeteria plan rules or the tax code.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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