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changing jobs mid-year and shifting from HSA to FSA


Guest jml051949
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Guest jml051949

I would appreciate advice on the following situation:

I was employed by a company that offered a HDHP and HSA from 9/08 thru 5/09. I made excess pre-tax contributions to the HSA in both 2008 and 2009 and have a balance of approximately $5,000. I contributed ~ $3000 pre-tax in 2008 and another $1650 pre-tax in 2009. My company contributed approximately $2000 over the same period. I used some of the funds to cover health care costs, resulting in the roughly $5000 HSA balance.

I left the company at the end of May, 2009 and received a severance. Part of my severance was an agreement by the company to fund my health care through the end of 2009 (under COBRA), or until I started at a new job that provided health care.

I started at a new company on 8/3/09 that does not offer a HDHP -- only a PPO with the option of a Flexible Spending Account to contribute pre-tax dollars. My previous company ended my coverage when I advised them I had started work at a new employer.

My questions:

-- Can I leave the $5,000 balance in my exisiting HSA where it is (credit union account) and use this to cover health care costs later on in retirement? If not, what happens to the money? Must it be refunded to me and if so, is there a 10% tax, plus the refund appears as ordinary taxable income at year-end?

-- Can I enroll in the FSA offered by my new company and contribute pre-tax $'s from 8/09 thru year end while still leaving money in the HSA? Can the FSA funds only be used to pay for unreimbursed health care costs incurred from the date of my employment (8/3/09) thru year end -- or can they be used for any 2009 unreimbursed expense, including the deductible from the previous HDHP?

-- Can I use the HSA funds already contributed and in my accout to pay for unreibursed health care costs from the PPO plan?

Thanks in advance for your help....

(I am not a benefits person -- hopefully I explained this well enough to elicit a few replies...

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-- Can I leave the $5,000 balance in my exisiting HSA where it is (credit union account) and use this to cover health care costs later on in retirement? If not, what happens to the money? Must it be refunded to me and if so, is there a 10% tax, plus the refund appears as ordinary taxable income at year-end?

You can leave the $5,000 balance in your existing HSA where it is. You may withdraw funds tax-free to pay for otherwise out-of-pocket health expenses whenever. If you withdraw during a year for which you do not have at least that amount in such health expenses, then the excess withdrawal will be income taxed. If it is before age 65, then you will also face a 10% tax penalty.

-- Can I enroll in the FSA offered by my new company and contribute pre-tax s from 8/09 thru year end while still leaving money in the HSA?

Yes, you can enroll in the FSA offered by your new employer from 8/09 thru year end while yet leaving the $5,000 in the HSA. Your enrollment in the FSA will likely disqualify you from new contributions being made to the HSA after 07/09--although some FSA's are compatible with eligibility for contributions to an HSA. Eligibility for HSA contributions is determined on a monthly basis.

Can the FSA funds only be used to pay for unreimbursed health care costs incurred from the date of my employment (8/3/09) thru year end -- or can they be used for any 2009 unreimbursed expense, including the deductible from the previous HDHP?

The FSA funds may only be used to pay for unreimbursed health care costs incurred from the date of your employment (8/3/09) thru either the end of the FSA's plan year or until 2 1/2 months after the end of the FSA plan year, it depends on whether the FSA plan allows FSA funds to be applied against expenses incurred during that extra 2 1/2 months. The FSA funds cannot be used for reimbursement of health expenses incurred prior to the date the FSA takes effect, which could not be before your employment date of 8/3/09.

-- Can I use the HSA funds already contributed and in my accout to pay for unreibursed health care costs from the PPO plan?

If those health care costs relate to services provided in the same year that you withdraw funds from the HSA, then yes.

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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