HDHP with FSA account? Is it possible?

[FIreDrill]

My Wife is now eligible for Health Insurance through her employer but their plans pretty bad so we are planning on declining and keeping her on my insurance policy which is a HDHP plan with 4k deductible and 6k max out of pocket.

Here is where things get interesting.  I have an HSA account for the HDHP and have been contributing to it out of my paycheck consistently.  My employer also puts 1k per year into it per year.  Well today we found out my wife's employer will contribute 310 per month into a FSA account for her if she declines insurance coverage from them.  My initial idea is to "close" or stop contributing to the HSA account and then use the wife's FSA account to pay for the first 3,720 bucks of my 4k deductible.  From what I have read you cannot contribute to both a FSA and a HSA at the same time so it would be an either or deal. 

First, I have never had an FSA before so I'm not sure how easy it is to get reimbursed or pay for medical expenses.  With my HSA, I just swipe the debit card, keep my receipts, and its done with.  Second, I'm trying to figure out is if using the FSA with a HDHP insurance plan would even be feasible tax wise. 

I'm currently doing as much research as I can online to see what my options are but I figured I might as well ask the awesome Mustachian community :)


Thanks!
SS

[chicagomeg]

You can only have a limited FSA (for vision and dental) in conjunction with an FSA. I believe that's the case even if your wife has traditional health insurance and you have  a HDHP; you can't have both in one family.

[FIreDrill]

You can only have a limited FSA (for vision and dental) in conjunction with an FSA. I believe that's the case even if your wife has traditional health insurance and you have  a HDHP; you can't have both in one family.

Sorry if I wasn't clear.  My wife will be declining coverage from her employer and remain covered through my HDHP plan, but by declining coverage her employer will contribute 310 per month into a FSA for her to use.  What I'm thinking of doing is stopping contributions to the HSA at my employer, effectively closing it out, and using the FSA that her employer provides to her for meeting the deductible on my employers HDHP which has both her and me on it.

[Cromacster]

I don't know the legalities of only having one or the other. but....

If I had to choose, I would choose the HSA.  With the FSA, it may be free money, but you lose it at the end of the year.  I'd much rather be building up my HSA, since that money is yours forever.  Not to mention HSA is tax deductible and also lowers your payroll taxes (SS FICA).

[rescuedog]

I'd chose the HSA over the FSA.  The FSA you have to spend each year or you loose it.  The HSA is triple tax deferred and invested, and will be for use for anything after age 65, or any health related things before that.  I think over time it's going to be the winner.

[FIreDrill]

Maigahane:

Thanks for sharing your experience.  From everything I have read it looks like I would be fine utilizing the FSA and opting out of the HSA.  It may be a bit more of a hassle but it's up to 2720 of free medical expenses per year.  My wife said that we would have to manually send in the receipts and then her company would cut us a check. 


kite:

I'm not too worried about the money reverting to the employer because it would be the employers contributions anyway, none of the money that we would use from it would be contributed by my wife.  I am currently "Maxing" out the HSA but if we went to the FSA then I would just divert the HSA funds into other tax sheltered accounts like 401k or IRA.


Cromacster:

I'm not sure why you would still choose the HSA.   The FSA is free money and I wouldn't really care if it got reverted to the employer at the end of the year cause it's not coming out of our paychecks.  Also, the amount I'm contributing to the HSA would then go to other tax sheltered accounts like IRA or 401k so I would keep the Federal tax deduction and It would remain mine forever.


Thanks for all the input guys!

[Cromacster]

I'm not sure why you would still choose the HSA.   The FSA is free money and I wouldn't really care if it got reverted to the employer at the end of the year cause it's not coming out of our paychecks.  Also, the amount I'm contributing to the HSA would then go to other tax sheltered accounts like IRA or 401k so I would keep the Federal tax deduction and It would remain mine forever.

Would you then losing the 1,000 contribution from your employer? How much do you spend on healthcare yearly?

Depending on your age the HSA is a great tool to save for future expenses, especially if you are young.

I have an HSA, I'm not badass enough to be completely maxing it out.  But I don't use it for any medical expenses.  Mostly because I spend about 500-1000 on any given year, usually closer to the 500, so easy enough out of pocket.  Even if I got closer to the 2k mark I would still go out of pocket.  In 20-30 years if something major happens my HSA is going to be rocking it for an event such as that.  Your IRA on the other hand won't.

[FIreDrill]

I'm not sure why you would still choose the HSA.   The FSA is free money and I wouldn't really care if it got reverted to the employer at the end of the year cause it's not coming out of our paychecks.  Also, the amount I'm contributing to the HSA would then go to other tax sheltered accounts like IRA or 401k so I would keep the Federal tax deduction and It would remain mine forever.

Would you then losing the 1,000 contribution from your employer? How much do you spend on healthcare yearly?

Depending on your age the HSA is a great tool to save for future expenses, especially if you are young.

I have an HSA, I'm not badass enough to be completely maxing it out.  But I don't use it for any medical expenses.  Mostly because I spend about 500-1000 on any given year, usually closer to the 500, so easy enough out of pocket.  Even if I got closer to the 2k mark I would still go out of pocket.  In 20-30 years if something major happens my HSA is going to be rocking it for an event such as that.  Your IRA on the other hand won't.

I believe we would loose the 1k per year employer contribution to the HSA.  I don't have a solid yearly average for medical expenses since we have not been married over a year yet.  When we got married my HDHP deductible went from 2k to 4k and over the 3 years of having the plan I have hit the deductible twice (once at 2k and once at 4k).  The third year I still probably had 1000 of medical expenses but I was purposely trying to have a light medical year in order to beef up the HSA and I wasn't married at the time.  We are currently getting a ton of medical stuff done this year but I'm not sure if we will continue to do so in the future.  I'm expecting our medical to decrease in the years to come, I would estimate 2500-3000 per year but honestly I really am not sure.  Where we live medical is about 41% more expensive than the national average so it can add up fast.


Edit: When I first got the HSA I had the same plan as you, max it out and use it for medical further down the road.  I'm just having a hard time figuring out if that is the best since we have this other really nice option.  There are definitely pros and cons for either way we go.

[Dulcimina]

I like the FSA option assuming medical expenses of $3000 and the ability to divert the $6500 you were using to max out the HSA into other retirement fundsaccounts

• With the HSA only option, you would have $3k in expenses, your employer would put $1k into the HSA and you would put $5500 into HSA

• With the FSA only option, you would have have $3k in expenses, but her employer would give you $3720 towards those expenses (you'd lose or carry over any excess) and you would put $6500 into a retirement account

• With the HSA plus LEX-FSA, you would have 3k in medical expenses, her employer would give you $3720 (but you would lose most of that since you can only use the LEX-FSA for dental and vision) and you would put $6500 into a retirement account