From the Hotline: Rolling Over FSA Funds
Question: If an employee has money left in his or her healthcare flexible spending account (FSA) to roll over, but decides to enroll in the company health savings account (HSA) at the new plan year instead of the FSA, what happens to the excess funds from this year? Can the employee use those funds for other expenses because he is enrolling in the HSA? Can the employee enroll in the HSA with the open FSA account?
Answer: Employees can roll over unused general purpose health FSA funds into a limited purpose or HSA-eligible health FSA at the start of the new cafeteria plan year. These funds cannot be rolled over until the start of the new cafeteria plan year. Employees who enroll in the high deductible health plan (HDHP) will not be eligible to open or contribute to an HSA until after the current FSA plan year has expired and any rollover funds are deposited into a post-deductible health FSA or limited purpose/HSA-eligible FSA. Please note that the carryover amounts may not be rolled over into a non-health FSA or another type of cafeteria plan benefit.
For more guidance from the IRS on rollover funds deposited into a limited FSA, visit www.irs.gov/pub/irs-wd/1413005.pdf.