If my wife has an FSA she can't close, and I've enrolled in an HSA. What are the implications?

[abrahammd]

My wife opened an FSA in August when she did her enrollment on her anniversary. She's contributing less than $500 to it.

My enrollment is done by calendar year so when I was offered a new HDHP   HSA I jumped on it assuming they'd be able to close the FSA like any other benefit when a "life event" occurred.

Now, after my enrollment has been completed, her HR department comes back and says they can't close the FSA.

I'm looking for information on what implications there are for this scenario or ways that we can force them to close the FSA.

[Opus 17 · Accepted solution]

The only way for you to not be covered by her FSA is for her to quit her job or divorce you.  Sorry.  A spouse changing insurance plans is not a qualifying life event. 

As you have figured out, because the FSA can be used to pay for care for herself, her spouse or her dependents, it counts as "other coverage" and disqualifies you from contributing to an HSA even though you are enrolled in a qualifying HDHP insurance plan.

If her benefit year ends in the middle of 2021, you can use the "last month" rule to make contributions in 2021.  The last month rule says that as long as you are eligible on December 1, 2021, AND you remain eligible for all of 2022, you can contribute up to your annual maximum for 2021 even though you are ineligible to contribute for part of 2021.  (You are "considered eligible" for the full year using the last month rule.).  However, you can't make any contributions for 2020, and if you already have you should remove them -- this is not a regular withdrawal, but a "return of mistaken contributions."  The bank may have a special form for you to fill out.  Your contribution limit is $3600 for single HDHP coverage or $7200 for family coverage, plus $1000 catch-up provision if you are age 55 or older.

In the future, your wife could still take a "limited purpose" FSA if her employer offers one.  A limited purpose FSA can only be used to pay for certain things, like dental and vision care, that don't count as "other coverage" alongside the HDHP.  For more information, see page 5 here. https://www.irs.gov/pub/irs-pdf/p969.pdf. Not all benefits providers will offer a limited purpose FSA.