HSA after changing jobs; had FSA earlier in the year

[JerryVandesic]

Can you start a new HSA after starting a new job if your previous job included an FSA?

I'm having a hard time teasing out the details but it appears to me that once you have a (non-limited use) FSA in a calendar year, it prevents you from having any form of HSA later in that calendar year, even if you switch jobs. Is this correct?

Suppose you work for company A from January until June. Company A provides a standard PPO and employee uses a standard (non-limited use) FSA to defer $500. Entire $500 is spent in March on medical care.

Employee leaves company A on June 30 and then joins company B on July 1. Company B provides HDHP, including company paid HSA contributions of $1K. Employee wants to contribute an additional $2K to HSA.

Is this possible? Can the employee contribute the $2K? Can the employee even sign up for the HDHP given that it includes the company paid HSA contribution of $1K? Does it matter that the FSA from company A is gone by the time the HSA starts?

TIA.

[JCJD]

You cannot contribute to an HSA in the same year in which you participated in the FSA...and, it does not matter whether or not your FSA funds have been depleted. You may sign up for a HDHP, you will just be unable to contribute to an HSA.

[MD-Benefits Guy]

You cannot contribute to an HSA in the same year in which you participated in the FSA...and, it does not matter whether or not your FSA funds have been depleted. You may sign up for a HDHP, you will just be unable to contribute to an HSA.

JCJD, can you explain the justification for your answer? I'm not saying you are wrong, but I thought the rule was that you cannot participate in an General Purpose HCFSA and an HSA at the same time. if someone has a HCFSA through their job and then their employment terminates, they are no longer an FSA participant...correct? Why wouldn't they be able to establish an HSA with a new employer?

[downesdn]

Similar issue. Trying to find out if something such as having an FSA with an HDHP would work out while in mid year, and then switch next calendar year to a full HSA.

I think the reasoning behind not being able to contribute to both is because your entire amount of contributions for an FSA is available to you as soon as the calendar year starts. So if your job terminates in January and you had set up 2k to go to the FSA, you'd be eligible to use up all of that 2k immediately if you wanted to

[spiritrider]

The reason you are not an eligible individual for HSA contributions are related to downesdn's response.

When you enroll in an FSA, you are enrolled for the entire plan year. Termination of employment does not change this, because on day one you accrued the entire benefit for the year.

The reverse is not true. If you have an HDHP/HSA and mid year change jobs to a company with a LDHP/FSA, you can enroll in the FSA. Your HSA contribution is prorated to the months you had HDHP coverage, but the HSA and funds already there are not affected.

[JerryVandesic]

You may sign up for a HDHP, you will just be unable to contribute to an HSA.

That makes sense. What about the situation where the HSA is funded by the employer? Can the employee still sign up for the HDHP?

[spiritrider]

Yes, you can still sign up for the HDHP, but you are not an eligible individual for HSA contributions regardless of the source for those contributions.

In such a case, you should probably notify your employer that you are an ineligible individual. If the company discovers after the fact that you were never an eligible individual, they can recover the contributions directly from the custodian.

They can also choose not to recover the contributions and earnings. In such a case it is an excess contribution which with earnings will be returned to you. The employer should then then include these amounts as gross income and wages on your W-2.

Even if you never tell the employer this still an ineligible contribution and should be removed as an excess contribution and excess earnings. These will be taxable income.

Generally, the company HSA contribution is part of the mix in determining whether an HDHP/HSA combination compared favorably to other plans offered from the company. So it may not be a wise decision to utilize such a health plan if you are an ineligible individual.