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Help! Can we move from FSA to HSA in same year?

I am on the board of directors of a non-profit and we only have one employee (out of 4) who is enrolled in employer provided health care. That plan year starts 4/1/15. In speaking with a broker, we found that if we offer a high-deductible plan along with an HSA that would cover the deductible, our costs would be reduced significantly. However, our employee is enrolled in a FSA, the plan year runs from 1/1/15 til 12/31/15. I understand that you cannot be enrolled in a FSA and an HSA at the same time. If we go ahead and sign on to the high deductible health plan, can we as the employer contribute to the HSA until 1/1/16 when the employee would be eligible to participate? We realize we'd lose any tax advantage,but as a non-profit that wouldn't have huge impact.
Can our employee use the $$ in the FSA to pay deductibles on the new plan?
Thanks for any direction or guidance you can offer.
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  • Hi Maureen,

    If the employee's Medical FSA runs from 1/1/15 through 12/31/15 no funding can go into the HSA until 1/1/2016 (assuming that all of the Medical FSA funds have been spent by 12/31/2015 if you all offer the IRS 2 1/2 month grace period). This situation is one of the reasons why we strongly recommend that our client's FSA plan year line up with their Medical plan(s) renewal.

    No, you cannot contribute to the HSA until the employee is eligible to receive deductions on 1/1/2016 (with the caveat I stated above if you all have the IRS Grace Period).

    Yes, the employee can use their FSA election to pay for deductibles under your new High Deductible plan.

    There are some other alternatives for this one employee to help span the gap over the next nine months before any funds can be contributed to an HSA. A call would probably be the easiest way to talk through the options so feel free to email me at jim at if you are interested.
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