Contribute to HSA during FSA grace period?

[jeromedawg]

Hey guys,

We just had a baby and wanted to increase our FSA contribution amount to account for the additional costs incurred from the hospital stay, etc. Open enrollment is also occurring soon in November though, and we are considering switching to HSA/HDHP as well. If we increase the FSA contribution and for whatever reason we don't use it all up by the end of the year, I understand there's still a 2-3 month grace period where you can use up the unused amount. I read an IRS publication from 2005 that states you cannot contribute to an HSA and also take advantage of the FSA grace period... is that still in effect? If you don't take advantage of the FSA grace period, I also read you can "amend" it - what exactly does that mean though? Will we basically lose whatever leftover money there is?

Chances of this happening are pretty low at this point, since we [mostly] know how much more we've incurred so that we can adjust the FSA accordingly to use up as close to if not the full amount we contributed. I'm more asking in a "just in case" scenario.

[MDM]

Congratulations on the baby!  That's the good news.

The "not as good as it could be, but as expected" news:
www.irs.gov/publications/p969: "Health FSA – grace period.   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero" and

https://www.law.cornell.edu/uscode/text/26/223: "coverage under a health flexible spending arrangement during any period immediately following the end of a plan year of such arrangement during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during such period if—
(I) the balance in such arrangement at the end of such plan year is zero"

Take your best guess and good luck!

[jeromedawg]

Congratulations on the baby!  That's the good news.

The "not as good as it could be, but as expected" news:
www.irs.gov/publications/p969: "Health FSA – grace period.   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero" and

https://www.law.cornell.edu/uscode/text/26/223: "coverage under a health flexible spending arrangement during any period immediately following the end of a plan year of such arrangement during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during such period if—
(I) the balance in such arrangement at the end of such plan year is zero"

Take your best guess and good luck!

So basically... it sounds like there is no true grace period.