During benefits open enrollment at my employer, I signed up for both Health Savings Account (HSA) and Flexible Savings Account (FSA) for next year.
You may have heard that you can’t contribute to both HSA and FSA in the same year. It’s not true. You can contribute to HSA and FSA in the same year.
First of all, if the FSA is a dependent care FSA, you can definitely have it in conjunction with HSA.
Second, if your health care FSA and HSA don’t overlap, you can contribute to both in the same year. For example if you have FSA with one job and you join another company that offers a high deductible plan with HSA, you can sign up for the HSA for the remaining months. If you are aggressive, you can invoke the “last month rule” and contribute the full year maximum to your HSA.
Last, which is the case for me, you can contribute to both HSA and health care FSA in overlapping months in the same year as well, if the FSA is a limited purpose FSA or a post-deductible FSA.
A limited purpose FSA covers dental, vision, and other eligible expenses, but not medical or prescription drugs. A post-deductible FSA kicks in only after you satisfied the deductible in a high deductible plan. I’ve never seen a post-deductible FSA. If your employer offers an HSA-eligible medical plan, it likely will make the FSA a limited purpose FSA for those who sign up for the HSA plan.
Why do you want to contribute to a limited purpose FSA in addition to the HSA? Because you want to save more pre-tax dollars. Just use the money in the limited purpose FSA to cover dental, vision, and other eligible expenses and save more of your HSA dollars for the future.
Some dental and vision expenses are predictable. If you need a dental implant or if your kids need braces, you have the treatment plan. You know roughly how much you will pay out of pocket. If you wear contact lenses, you know how much they cost over the course of a year and how much insurance will cover. Use a limited purpose FSA to cover these expenses instead of taking money out of your HSA or paying out of pocket with post-tax dollars.
FSAs have become more flexible since the IRS allowed employers to add a 2-1/2-month grace period or a $500 rollover for unused dollars. My employer chose the $500 rollover option. When unused dollars in a limited purpose FSA roll over to the following year, they stay as limited purpose and they don’t interfere with the HSA.
What you can’t do is to contribute to an HSA and have a general purpose health care FSA for overlapping months, and if you are married, your spouse can’t have a general purpose FSA at the same time either, regardless whether the two of you are on the same health plan or whether you actually request reimbursement from your spouse’s FSA. Just the fact that you are eligible to have your medical expenses reimbursed from your spouse’s FSA disqualifies you from contributing to an HSA.