The rules surrounding Flexible Spending Accounts (FSAs) can be complex. The three types of FSAs, Healthcare Flexible Spending Accounts (Healthcare FSAs), Limited Purpose Flexible Spending Accounts (Limited Purpose FSAs), and Dependent Care Accounts (DCAs) each have their own set of rules for how they interact with other reimbursement accounts and with one another. Here are some of the most common rules to know:
Healthcare FSAs and Dependent Care Accounts
While Healthcare FSAs and DCA are both considered Flexible Spending Accounts, they have different purposes. One similarity is you may save on taxes by contributing to the accounts pre-tax via payroll deduction. You may have both a Healthcare FSA and a DCA at the same time, and often they will share the same plan year and runoff period. You may not transfer funds from one account to another.
Limited Purpose FSAs
LPFSAs are unique in that they are designed to only help pay for eligible dental and vision expenses. They can be combined with other reimbursement accounts such as HSAs and Health Reimbursement Arrangements (HRAs).
HSAs and Healthcare FSAs
Healthcare FSAs and HSAs are used similarly, but there are key differences in the way they interact with each other:
Contributions & Distributions
You cannot contribute to both a Healthcare FSA and an HSA at the same time. If you are contributing to a Healthcare FSA (or have funds still available), you can take distributions (withdraw or use on eligible expenses) from both your Healthcare FSA and HSA at any time during your plan year. However, this does not work the other way around. If you are covered by a Qualified HDHP and contribute to an HSA, you may not contribute to or have funds available for reimbursement from a Healthcare FSA (your own or your spouse’s).
Transitioning from One Account to Another
If you are switching from an HSA to a Healthcare FSA, the only rule is that you may no longer contribute to the HSA once your Healthcare FSA plan year starts. As mentioned above, you may continue to use your HSA funds for eligible medical expenses for you and your dependents. The transition from a Healthcare FSA to HSA is a bit more complex, as you cannot have any funds in your Healthcare FSA when you make the switch.
While FSA rules can be complex, we’re here to help! Contact your local account manager if you have questions about your reimbursement accounts or other employee benefits.
Learn more in our HSA Mistakes to Avoid Series: