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I know that if an employee elects medical coverage under an HSA type plan, they can only use a 'limited purpose' flex spending account.  This is also true for a spouse covered under the same plan, so that in other words if you are contributing money to be invested in an HSA account, you and/or your spouse can't also contribute to a regular flex spending account.

I'm in kind of an interesting situation with this.  I know this is a no-no under the IRS rules that a family can't contribute to both types of accounts.  My situation is that if my spouse chooses family coverage under an HSA at her company, then both she and her employer contribute money to the HSA account, and I no longer elect coverage under my employer's plan, my employer has a provision that if an employee is not covered under any company medical plan, my employer will contribute about $1000 to a regular flex spending account.

So my question is, all of the rules I've read about this say that the employee(s) can't contribute to both accounts.  But in this case I, as the employee, would not be contributing to the account but rather my employer would.  Does this fall under the same guidelines concerning employee contributions prohibiting using both types of accounts at the same time?

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It is not the employee FSA contributions that make you an ineligible individual for HSA purposes. It is the fact that an FSA can reimburse for any first dollar medical expenses before the deductible is met.

If the employer makes contributions to a general purpose FSA that can be used for first dollar coverage, you are not eligible for HSA contributions.

However, if the FSA is either a limited purpose FSA (dental, vision, non-medical coverage) and/or a post-deductible FSA, then you are an eligible individual.

Have you asked your employer if they can contribute to a limited use FSA?

The rule is not whether or not the employee contributes, it is whether or not an individual is covered. In your example, you would be covered by an FSA and therefore ineligible to contribute to an HSA. Ask your employer if they would make that an HSA or limited-purpose FSA contribution instead.

If this is a general purpose FSA, one critical question is whether this FSA provided by your company can be used only to reimburse your expenses or includes your spouse and family expenses.

When a spouse is a covered individual on their spouse's HDHP family plan, that makes them an eligible individual to make contributions. The two spouses can then decide on how to allocate the maximum family contribution limit - employer contributions.

It is this ability to be an eligible individual to make contributions to your own account that is affected by your employer's FSA. If this FSA can reimburse your family expenses, it would preclude HSA contributions by the employer, your spouse and you. This would likely make the HDHP very unattractive. However, if this FSA only covers you, then it would only prohibit contributions by you. Your wife can still have a family HDHP and make the full family contribution limit - employer contributions by payroll deduction to her HSA account.

If this latter situation is true, then you would be able to use this FSA for your expenses. Your wife's HSA account can be used to reimburse un-reimbursed qualified medical expenses for herself, dependents and even you after the FSA has been exhausted.

daw4888 said:   Have you asked your employer if they can contribute to a limited use FSA?
  
Good question.  I dug around our HR paperwork and the form I have to fill out for this, it looks like they can contribute to a limited use FSA.  I sent an email to our HR dept this morning asking for confirmation.
btuttle said:   If this is a general purpose FSA, one critical question is whether this FSA provided by your company can be used only to reimburse your expenses or includes your spouse and family expenses.

When a spouse is a covered individual on their spouse's HDHP family plan, that makes them an eligible individual to make contributions. The two spouses can then decide on how to allocate the maximum family contribution limit - employer contributions.

It is this ability to be an eligible individual to make contributions to your own account that is affected by your employer's FSA. If this FSA can reimburse your family expenses, it would preclude HSA contributions by the employer, your spouse and you. This would likely make the HDHP very unattractive. However, if this FSA only covers you, then it would only prohibit contributions by you. Your wife can still have a family HDHP and make the full family contribution limit - employer contributions by payroll deduction to her HSA account.

If this latter situation is true, then you would be able to use this FSA for your expenses. Your wife's HSA account can be used to reimburse un-reimbursed qualified medical expenses for herself, dependents and even you after the FSA has been exhausted.
 

 
So in other words, you're saying that if I find out that my employer can contribute that $1000 to a limited purpose FSA, I need to ask a follow-up question of whether or not that money can be used for my family's eligible expenses?  And if so, that makes me ineligible to receive those funds?

doveroftke said:   The rule is not whether or not the employee contributes, it is whether or not an individual is covered. In your example, you would be covered by an FSA and therefore ineligible to contribute to an HSA. Ask your employer if they would make that an HSA or limited-purpose FSA contribution instead.
  
Perhaps I've not really explained myself well.  In the hypothetical scenario I've laid out, my family is covered by wife's HSA and we receive her company's seed money deposited into the HSA account.  Since I'm no longer covered by my company's plan, my company has an added benefit of tossing $1000 into a flex account (which I'm confirming now if it can be placed into a LP account). 

Neither my wife or I intend to contribute any money into either of these accounts because of how much both of our companies are contributing already.

Small update: I have received confirmation from my company's HR that if I provide proof that I'm covered under my spouse's HSA, they will deposit the $1000 into a limited purpose FSA.

You should be fine then. Just make sure to use those funds every year for dental/eye expenses. The FSA is use it, or loose it. Does your wife's company max out her HSA as part of her medical package? If not ask your company if they will contribute to a HSA instead of a FSA.

FrankDooley said:   
So in other words, you're saying that if I find out that my employer can contribute that $1000 to a limited purpose FSA, I need to ask a follow-up question of whether or not that money can be used for my family's eligible expenses?  And if so, that makes me ineligible to receive those funds?

A limited purpose FSA does not interfere with anyone's HSA eligibility. You need to ask the follow-up question, but only because it would be better if the FSA can be used for the whole family. Then you would be more likely to be able use up all the money.

FrankDooley said:   
doveroftke said:   The rule is not whether or not the employee contributes, it is whether or not an individual is covered. In your example, you would be covered by an FSA and therefore ineligible to contribute to an HSA. Ask your employer if they would make that an HSA or limited-purpose FSA contribution instead.
  
Perhaps I've not really explained myself well.  In the hypothetical scenario I've laid out, my family is covered by wife's HSA and we receive her company's seed money deposited into the HSA account.  Since I'm no longer covered by my company's plan, my company has an added benefit of tossing $1000 into a flex account (which I'm confirming now if it can be placed into a LP account). 

Neither my wife or I intend to contribute any money into either of these accounts because of how much both of our companies are contributing already.

  
You were very clear, in your example you would be covered by an FSA. I know "covered" doesn't seem like the right term since the FSA isn't a medical plan per se, but if you look at the IRS rules that is the term they would use to describe your situation.

Anyway, thanks for the update, glad you were able to get a satisfactory resolution! (Looking forward to the followup: "What can I use this stinkin' limited-purpose FSA for?" )

To answer the original question, you would not be breaking any IRS rules given your employer is making the contribution.

Thanks being said, I would highly recommend contributing to your HSA for two reasons.
1) FSA's typically have restrictions placed on them by employers. For example, some plans require you to spend all of the money in the account each calendar year and almost all plans do not allow you to bring the money with you if you leave your employer.
2) If you have money to save, you NEED to be maxing out your HSA. Tax deduction for money you put in, tax deferred growth, and tax free withdrawal if used for medical expenses. HSA's can also be used to save for retirement. If you have questions about how to set up an HSA or if you would like to know more about using an HSA for retirement, send me a private message and I would be happy to walk through it given your personal situation.

bgriffith67 said:   To answer the original question, you would not be breaking any IRS rules given your employer is making the contribution.

Thanks being said, I would highly recommend contributing to your HSA for two reasons.
1) FSA's typically have restrictions placed on them by employers. For example, some plans require you to spend all of the money in the account each calendar year and almost all plans do not allow you to bring the money with you if you leave your employer.
2) If you have money to save, you NEED to be maxing out your HSA. Tax deduction for money you put in, tax deferred growth, and tax free withdrawal if used for medical expenses. HSA's can also be used to save for retirement. If you have questions about how to set up an HSA or if you would like to know more about using an HSA for retirement, send me a private message and I would be happy to walk through it given your personal situation.

  The FSA restrictions like use it or lose it, cannot take it with you if you leave employer are set in law.

Your second point almost sounds like soliciting business. Are you an "agent" that is trying to get clients here? OP can very well ask questions on this open forum for ways to set up an HSA account or use HSA funds for retirement to get answers. You are welcome to add your answers on this forum so that everyone can benefit.



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