Tips when switching from a full medical FSA to an HSA

Switching to a health savings account (HSA) when you’ve been a longtime general-purpose medical flexible spending account (FSA) participant isn’t completely straightforward. We’ve compiled some tips to make your transition smooth.

Short-term vs. long-term view

From a short-term view, a medical FSA and HSA are similar, especially when looking at eligible expenses. The similarities include:

Each can be sponsored or implemented by your employer.
Both accounts help offset eligible medical expenses.
Both accounts hold multiple tax advantages.
They share many of the same eligible expenses.

However, they do have some big differences. We’ve laid them out below:

	Medical FSA	HSA
2022 contribution limits	Up to $2,850	Up to $3,650 for those with individual coverage Up to $7,300 for those with family coverage
Carryover limits	Employers may allow up to a $570 carryover of medical FSA funds	All funds carry over from year to year
Account portability	Funds remain with the employer plan	Account is owned by YOU and will stay with you if your employment changes
Tax benefits	Your contributions are generally tax-free and not subject to income tax Reimburses purchases of qualified medical expenses only	Your contributions are generally tax-free and not subject to income tax Distributions made for qualified medical expenses are also not taxed Account balance growth through investment or interest is also not taxed

Are you eligible to participate in an HSA?

If you are thinking about enrolling in an HSA, you’re only eligible if you meet certain criteria.

To participate in an HSA, you must be enrolled in an HSA-qualified plan. This could be your current health insurance as long as it is classified as a high-deductible health plan (HDHP).
- Deductible limits for these plans are set by the IRS each year.
You cannot be enrolled in a general-purpose medical FSA and an HSA at the same time. If your spouse is enrolled in a general-purpose medical FSA, this would also disqualify you from participating in an HSA.
If you are enrolled in a general-purpose medical FSA, you must spend down your entire FSA balance and file all of your claims before you are eligible for an HSA.

Not all FSAs are off-limits

You cannot be enrolled in a general-purpose medical FSA and an HSA at the same time. However, not all FSAs are off-limits. You can pair an HSA with a limited FSA, combination FSA, or dependent care FSA.

A limited FSA covers dental, vision, and preventive care expenses.
A combination FSA covers the same expenses as a limited FSA. Once the IRS deductible is met, it converts into a full medical FSA and still remains eligible to be paired with an HDHP and HSA.
Dependent care FSAs are also a popular option to pair with a HSA. A dependent care FSA can be used to pay for the costs of caring for dependents that are under the age of 13. Dependents who are not able to care for themselves while you are away at work or school, such as an elderly parent or a household member with disabilities, also qualify.

Would you like to learn more about how an HSA compares with an FSA? Watch our video from a recent Benefits Buzz podcast episode.

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.

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