Yeah, it should be sim­ple. First we had the FSA. Then we had the HSA. Then we had the IRS say that an FSA had to be lim­it­ed to den­tal and vision while the HSA could cov­er med­ical, den­tal and vision all togeth­er. Then the gov­ern­ment said we could have grace peri­ods of up to ten weeks for the FSA. That wasn’t too hard, but there were some unan­swered ques­tions. Then the gov­ern­ment decid­ed that a grace peri­od wasn’t enough, and now employ­ers have the option of rolling over $500 of unused funds to the next plan year. Final­ly the IRS decid­ed they had had enough…and had to step in and pro­vide a slew of rules (oh boy):

  1. Indi­vid­ual cov­ered by gen­er­al health FSA (bureau speak for reg­u­lar old FSA) may not make con­tri­bu­tions to an HSA (yes, we already knew that). This includes, how­ev­er, some­one who has cov­er­age in an FSA sole­ly as the result of a car­ry­over of unused amounts in a health FSA from the pri­or year
  2. Indi­vid­ual cov­ered by gen­er­al health FSA sole­ly as the result of a car­ry­over of unused amounts in the FSA from the pre­vi­ous year may not con­tribute to an HSA even for months in the plan year after the health FSA no longer has any amounts avail­able to pay or reim­burse med­ical expenses
  3. Indi­vid­ual who par­tic­i­pates in gen­er­al health FSA and elects, for the fol­low­ing year, to par­tic­i­pate in an HSA com­pat­i­ble lim­it­ed pur­pose FSA (mean­ing den­tal and vision only) may choose to have any unused amounts from the gen­er­al health FSA car­ried over to the HSA com­pat­i­ble lim­it­ed pur­pose health FSA. There is no require­ment that the unused amounts in the gen­er­al health FSA only be car­ried over to a gen­er­al health FSA
  4.  Indi­vid­ual who par­tic­i­pates in gen­er­al health FSA and elects, for the fol­low­ing year, to par­tic­i­pate in an HSA com­pat­i­ble lim­it­ed pur­pose FSA and have any unused amounts from the gen­er­al pur­pose health FSA car­ried over to the HSA com­pat­i­ble health FSA is eli­gi­ble to con­tribute to an HSA dur­ing the fol­low­ing year if the indi­vid­ual is oth­er­wise HSA eligible
  5.  A cafe­te­ria plan that offers both a gen­er­al health FSA and an HSA com­pat­i­ble lim­it­ed pur­pose health FSA may be draft­ed or amend­ed to auto­mat­i­cal­ly treat an indi­vid­ual who elects cov­er­age in a High Deductible Health Plan for the fol­low­ing year as enrolled in the HSA com­pat­i­ble lim­it­ed pur­pose health FSA and car­ry over any unused amounts from a gen­er­al health FSA to the HSA com­pat­i­ble lim­it­ed pur­pose health FSA for the fol­low­ing year
  6. A cafe­te­ria plan may be draft­ed or amend­ed to pro­vide that if an indi­vid­ual par­tic­i­pates in a gen­er­al health FSA that pro­vides for a car­ry­over of unused amounts, the indi­vid­ual may elect pri­or to the begin­ning of the fol­low­ing year to decline or waive the FSA car­ry­over for the fol­low­ing year. In that case, the indi­vid­ual who declines the FSA car­ry­over under the terms of the Cafe­te­ria Plan may con­tribute to an HSA dur­ing the fol­low­ing year if the indi­vid­ual is oth­er­wise HSA eligible

Got it? Yes, it’s com­pli­cat­ed. We are ready to help you as soon as we deci­pher it.