Previous company had HSA, new company has FSA, want to go back to using old HSA

[Pthacker52328]

I left my previous company in 2020, which had an HSA, and started contributing to the new company's FSA in 2021.  There is no company match. I am still in a high deductible plan. 

I want stop using the FSA and want to resume using my old HSA in 2022,  but only if I can still get HSA tax benefits.  I envision just using after-tax money to fund the HSA, and then claim the HSA contributions on 2022 taxes to reduce taxable income.  I see all sorts of statements that say the HSA 'belongs to me' and I can use it as long as I am under a high deductible plan, but - I can't see anywhere that says that contributions can be used to reduce taxable income like an IRA would

[Opus 17 · Accepted solution]

There are two separate points.

To make deductible contributions to an HSA, you must have a qualified HDHP and no other medical coverage.  The FSA counts as medical coverage since it can be used to pay out of pocket expenses, so having the FSA disqualifies you from making new contributions to your HSA.  You could start making new contributions to the HSA in 2022 if you are no longer covered by the FSA and you are still enrolled in a qualified HDHP.   An HSA does not have to be sponsored by the employer, you can open a private HSA at any participating bank and make out of pocket contributions which will give you a tax deduction.  (Or you can use your existing HSA if they will accept out of pocket contributions.)

Separately, once you own an HSA, you can use those funds for any qualified medical expenses for yourself, your spouse and your dependents, even if you are not eligible to make new contributions.  It doesn't matter what kind of insurance you have when you want to spend your HSA funds. 

[Mike9241]

FSA as Disqualifying Other Coverage
If an employee is enrolled in a general-purpose health FSA through his or her employer, that employee is not HSA eligible. However, if the health FSA is what we refer to as “limited-purpose,” or in other words covers only certain excepted benefits such as dental and vision, it will not preclude HSA eligibility. Further, if the FSA is set up to be a “post-deductible FSA” so that it will not reimburse medical expenses until after the deductible has been satisfied, it will not preclude HSA eligibility.

One often overlooked source of disqualifying other coverage is a spouse’s FSA. If a spouse is covered under a general-purpose FSA that reimburses expenses before the deductible is satisfied, it is likely that the employee’s medical expenses could also be covered under that FSA. Where this is the case, neither the employee nor the spouse is HSA eligible. This is true even if the employee’s spouse does not actually use his or her FSA on the employee’s expenses.

In most cases, if an individual does not use his or her FSA funds by the end of the plan year, he or she will forfeit the amount remaining in the account. However, there are certain ways that a plan sponsor can design the account to give the individual extra time to use the left-over amount. Note:HSA eligibility is not precluded by a run-out period, where an individual has not elected an FSA for the subsequent plan year. A run-out period is a period of time designated into the next plan year, during which the individual can submit expenses for reimbursement that were incurred during the prior plan year.

The first option is to allow for what is called a “rollover.” If an employer allows any amount to “rollover” into an FSA for the individual for the next plan year, that individual will be ineligible for an HSA for the entire next plan year, unless they opt out of receiving that rollover or the rollover is made to a limited-purpose FSA. The person remains ineligible for an HSA for the entire plan year, regardless of when the individual actually exhausts his or her FSA funds that rolled over.

Instead of a rollover, some employers allow for what is referred to as a “grace period.” A grace period is a limited period of time after the close of the plan year (no longer than 2 ½ months), during which time individuals can continue to incur medical expenses for reimbursement from the balance remaining in their FSA account from the prior year. If an individual did not elect an FSA for a given plan year but has greater than a $0 balance on the last day of the prior plan year, he or she will be HSA ineligible for the duration of the grace period.

[AmeliesUncle]

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@Pthacker52328 wrote:

 I am still in a high deductible plan. 

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Is that through your employer?  It would be unusual if your employer offers a High Deductible Health Plan and does not offer a HSA option.

If can do it through your employer (through your paychecks, rather than independently) that is better because it usually would ALSO save Social Security and Medicare tax.

Similarly, be aware that the FSA amounts save income tax AND Social Security and Medicare taxes.  Versus if you contribute to an HSA outside of your employer, it only saves income tax.

[Opus 17]

@AmeliesUncle 

Not so unusual. My employer offers 2 HDHPs—one with HSA option and one without, because it has certain other benefits instead that disqualify it.

[AmeliesUncle]

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@Opus 17 wrote:

because it has certain other benefits instead that disqualify it.

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Interesting point.  But that means that the OP needs to check if his/her HDHP qualifies for an HSA.  If it does, it would be unusual that the employer does not offer an HSA.  If it does not qualify, then the OP can't be contributing to an HSA at all.

[Pthacker52328]

So, my new company offers an FSA instead of HSA, I do not know why, and I don't expect it to change.  I "enrolled" in this FSA for 2021, not knowing if there was any alternative.  I still have a balance in my HSA but have not used it in 2021.  It is clear to me that I cannot do both.  What I am thinking is that I would choose NOT to enroll in company sponsored FSA for 2022,  as there is no company match, and, instead, start funding and using the existing HSA again.   It is clear that there would be no payroll deduction, and I'd have to manage this with my own funding.  I will not do this if I cannot have the HSA tax advantage though.  So, if legal, the plan would look like this:

• do not enroll in company sponsored FSA for 2022
• use after tax dollars to re-start HSA funding in my existing HSA account for 2022
• claim these after tax dollars on my 2022 taxes as HSA contributions and get the income tax reduction.  

[Opus 17]

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@Pthacker52328 wrote:

So, my new company offers an FSA instead of HSA, I do not know why, and I don't expect it to change.  I "enrolled" in this FSA for 2021, not knowing if there was any alternative.  I still have a balance in my HSA but have not used it in 2021.  It is clear to me that I cannot do both.  What I am thinking is that I would choose NOT to enroll in company sponsored FSA for 2022,  as there is no company match, and, instead, start funding and using the existing HSA again.   It is clear that there would be no payroll deduction, and I'd have to manage this with my own funding.  I will not do this if I cannot have the HSA tax advantage though.  So, if legal, the plan would look like this:

• do not enroll in company sponsored FSA for 2022
• use after tax dollars to re-start HSA funding in my existing HSA account for 2022
• claim these after tax dollars on my 2022 taxes as HSA contributions and get the income tax reduction.  

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Yes, that plan is available to you.  You will get a federal tax deduction for out of pocket HSA contributions.  You may or may not get a state tax deduction, depending on your state.

Note that you can spend from the HSA even if you are enrolled in the FSA, you just can't make HSA contributions. 

[AmeliesUncle]

But as we were discussing above, it is suspicious if your employer does not offer an HSA option.  If your employer doesn't offer an HSA, you should research if the High Deductible Health Plan actually does qualify for an HSA, or if there is something about it that would disqualify the HSA.

As a side note, you can still USE the funds that are already in your existing HSA, even if you have an FSA.  But you just can't contribute more funds to the HSA because of the FSA (assuming the FSA isn't a "limited" one, such as only for dental and vision).

[Opus 17]

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@AmeliesUncle wrote:

But as we were discussing above, it is suspicious if your employer does not offer an HSA option.  If your employer doesn't offer an HSA, you should research if the High Deductible Health Plan actually does qualify for an HSA, or if there is something about it that would disqualify the HSA.

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I'm a lot less worried about this than you are.  One simple explanation would be that funds left over in the FSA accounts are forfeited to the employer (or the plan administrator), but money in an HSA is the employee's forever.  The employer may not want to give up the extra profit from employees failing to use their FSA money.