@wendy3152020 wrote:
Thank you very much for a detailed explanation. The only part I am unsure about is that the company doesn't provide a "grace period" but a "rollover" for FSA. So, can we use the "grace period" rule for the "rollover" plan? If so, the plan must be exhausted in 2 days to meet the "grace period" rule, correct? Then, use the "last month rule" to contribute to the full-year HSA plan, correct?
We need to clarify this.
A "grace period" means that the company can allow the employee to submit claims for medical expenses that occur between January 1 and March 15, 2025, to be reimbursed from the unspent 2024 funds. It is not technically a carry over. There is no dollar limit on the amount of funds that can be used in the grace period. Your husband can be "not a plan participant" in 2025, and still use the 2024 funds during the grace period. The FSA ends on March 15, or when the funds are spent, whichever comes first. After the FSA is empty, or after March 15, and as long as your husband is not a participant for 2025, then you are eligible to make HSA contributions.
A "carry over" means that unspent funds (up to $640) may be carried over for 2025 expenses ("the following plan year.") Those funds would be added to any funds contributed for the 2025 plan year. Importantly, if you have a carry over, then you are a participant in the plan for all of 2025, and are never eligible to contribute to an HSA for 2025, even using the last month rule.
A plan can't allow both a grace period and a carry over, it is one or the other.
So again to clarify,
- If this is a grace period, then your husband's plan ended on 12/31/2024. He has a 75 day grace period to use up left over funds by having new medical expenses before March 15, 2025. The grace period ends on March 15 and if there are still funds in the account, they are forfeit. A grace period is not participating for 2025, and once the grace period ends, you are eligible to contribute to an HSA.
- A carry over means your unspent balance from 2024 is added to your 2025 participation, and you are a participant in the 2025 plan for the whole year. If your husband is a participant in the 2025 plan, then you will never be eligible to contribute to an HSA in 2025--not even using the last month rule, and not even if he is not adding new money, and not even if the old money is used up.
