Anyone help? Husband has a 2025 rollover from 2024 FSA (he doesn't enroll 2025 FSA). Wife enrolls in 2025 HSA (husband IS NOT on the plan). How to fix the situation?

[wendy3152020]

Can she enroll 2025 HSA?

[BillM223]

For an HSA, the plan is a High Deductible Health Plan (HDHP), which is a health insurance policy with certain deductibles and other attributes. To be able to contribute to an HSA, a taxpayer has to be covered by an HDHP and have no conflicting coverage like an FSA or HRA or spouse's employer insurance or Medicare, to give the most prominent examples.

So when you say, "Wife enrolls in 2025 HSA (husband IS NOT on the plan)", do you mean that the wife is covered by an HDHP policy? Is it Self-only or Family (it is possible to have a Family HDHP policy with one spouse and one or more dependents, but not the other spouse)?

So when you say, "Husband has a 2025 rollover from 2024 FSA", do you means that the husband's FSA in 2025 allowed for a grace period from 2024 for expenses that had not yet been used? How long is this grace period (it varies from employer to employer)?

The difficulty of FSAs and HSAs is that an FSA automatically covers both spouses - there is no way for one spouse to opt out of the other's FSA. Thus, when one spouse has an FSA, neither spouse can contribute to an HSA. on the principle that you can't have any competing insurance or medical benefits to the HDHP, except for a narrow list shown in Pub 969.

Of course, HSAs predate the concept of FSAs having a grace period, so I do not know if there has been any specific ruling on your particular situation. My guess, though, is that you can't claim HDHP coverage for the months during the FSA's grace period.

So if the FSA's grace period is 3 months, that means that you don't claim HDHP coverage for those three months in the HSA interview in TurboTax.

So, to be clear, the wife can create an HSA any time if she has HDHP coverage but cannot contribute to it until the husband's grace period has expired.

[wendy3152020]

1. So when you say, "Wife enrolls in 2025 HSA (husband IS NOT on the plan)", do you mean that the wife is covered by an HDHP policy? Is it Self-only or Family (it is possible to have a Family HDHP policy with one spouse and one or more dependents, but not the other spouse)?  You are right, it is a family with one spouse +dependent (without the HSA spouse) plan. 

2. "Grace period?" Rollover from 2024 to 2025 means rollover the remaining balance from 2024 to 2025. So, in 2025, do you mean after the husband empties the remaining balance of the FSA account, then the wife can contribute to HSA, or does it mean the wife can't enroll in the 2025 HSA due to the husband having a rollover balance from 2024 FSA to 2025 FSA? 

Thank you very much for your help.

[BillM223]

Are you saying that his employer FSA plan allows a carryover and not a grace period?  Hmmmn, grace periods are more common than carryovers, which is what I assumed "rollover" referred to.

In that case, I would urge you guys to spend that carryover money as quickly as possible and document it when it is gone. Then in the month after the last of the carryover is gone, start your HSA contributions.

What you do NOT want is the choice to pay for medical expenses from either the FSA or the HSA (yes, I recognize that you don't have anything in the HSA yet). We don't want any overlap between the two.

Just make sure that in no month can he pay for medical expenses from his FSA while you are contributing to the HSA.

[wendy3152020]

Thank you very much for the response. 

Please advise: 1, HSA has been contributed starting in 2025. What should they do with the HSA contributions?

2. The FSA account has been "inactive" since 01/01/25 because the FSA company is clearing up the 2024 expenses.  It will be unlocked and return as active at the end of March/April. So, do you mean no HSA contributions for those times till the account returns active and they empty the account?

[BillM223]

I am sorry, but you have an unusual situation. Locking an FSA account? It taking 3+ months to close the FSA books on 2024? This is unusual.

And when you add that to having a carryover of FSA funds from 2024 rather than the more common grace period (companies like the grace period, because it means that the requests for payment will be over and done with, not being deferred until the night of December 31st),  you have found yourselves in a situation that to my knowledge has not been discussed by the IRS in its notices.

My feeling is that it would be difficult to explain why it was OK to do HSA contributions one month, then FSA reimbursements the next month, then back to HSA contributions. The programs were not set up that way.

Normally, if you have an FSA, it's for all year. I was only interested in finding out your grace period to pin down when your FSA program had definitely ended.

Well, as you know, we do not do your tax returns here on the Community (we do have a TurboTax Live Full Service that will complete and sign your return). We provide information on what the IRS and the States say, but if there is no previous statement on your exact situation, all I can say is that whatever you decide, document it completely, in case any one ever asks.

[wendy3152020]

Thank you so much for your explanation. One more question: If decide to exhaust the carry-over remaining balance now and then back to HSA, then what to do with the already contributed HSA fund from 01/01/25-current? Withdraw it? Contact with the HSA company?  Will there be an additional tax (10%) besides the income tax on those contributions/withdrawals? and penalties? How about the employer contribution?

After the fund is exhausted in March, continue to contribute to HSA (basically next month in April). Is there a rule that the 2025 HSA contribution is through 4/15/2026? So in 01/2026, two contributions can be made (one for 2025 and another for 2026)?