HSA-FSA Question

[smm]

Some of this may be basic, but I'm working out the interplay between an HSA and an FSA. Individual began family coverage under an HDHP effective 1/1/07 and intends to set up an HSA for 2007. Individual's spouse is covered by an FSA through her employment. FSA's period of coverage is September 1 to August 31. I assume that the FSA is a general purpose FSA.

Question is when is the individual eligible to begin to contribute to an HSA for 2007. Is it September 1, 2007? If so, is the contribution limited to 1/3 of the maximum for 2007? What if the FSA available amount is spent down to zero before Spetember 1, 2007? Is it the first day of the following month? Under the recent legislation, the grace period is disregarded if the balance on the last day of the plan year is zero. This seems to suggest that it cannot be any earlier, but maybe I'm wrong.

Could the general purpose FSA be amended to become a limited purpose FSA via a snap on amendment? Any thoughts would be appreciated.

[Jacmo]

1)Assuming spouse doesn't renew her FSA election, ( and has a zero balance), he can start making contributions 9/1.

2) Under the new rules, not limited to 1/3. Can fund to the max for 2007.

3) Even tho the FSA balance may be zero prior to 9/1, the spouse (and husband) is still "covered" by the FSA until 8/31.

4) Yes, GP FSA could be amended to become a limited purpose FSA.

[smm]

Thanks for getting back to me. I agree with 1, 3 and 4. With respect to no.2, I know that the recent HSA legislation allows someone who is otherwise HSA eligible to fund for the maximum, even if they do not make the contribution until the end of the year, but doesn't that result require the person to be HSA eligible for the entire year? In my example, I think we agree that the person doesn't become HSA eligible until 9/1. Therefore, isn't the maximum contribution 1/3 of the otherwise maximum? I would love for the answer to be that the person could fund to the maximum for the year, but that conclusion seems inconsistent with the interplay between the HSA and the FSA. Hopefully, I'm wrong and you are right.

Also, I'm of the belief (unless someone directs me to the contrary) that an FSA could serve as both a general purpose and a limited purpose FSA - In other words, you don't need a separate document - as long as the FSA includes the correct language.

Any thoughts?

[Jacmo]

Re: #2--Not any more (as of 1/1/07). During the first full month that I am HSA eligible in 2007, I can contribute to the max for 2007. I can become HSA eligible in December 07 and fund the max for all of 2007.

Re the 2nd part of your question: I think what you're asking is--can one document serve for 2 distinctive plans. I believe the answer to be yes. As a parallel example, one document serves for 2 "plans" when a medical fsa and a DCAP fsa are included in the same document (and for 3 "plans" when the POP portion is included).