How to Save in Both an HSA and an FSA

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I signed up for a high-deductible insurance policy at my new job, but my employer offers a flexible spending account rather than a health savings account. I had an HSA with my previous employer. Can I keep my HSA if I want to contribute on my own and also contribute to the FSA?

FAQs About Health Savings Accounts

You generally can’t contribute to both a health savings account and a flexible spending account at the same time, but there is one exception. Some employers offer HSA-eligible, limited-purpose FSAs that only cover certain expenses, such as dental and vision costs. See Can I Contribute to Both an HSA and FSA? for more information about limited-purpose FSAs. The FSA must be specifically designated as an “HSA-compatible FSA” for you to be able to contribute to both types of plans. In that case, you could contribute to the FSA but also continue to make contributions to your health savings account, as long as you have an HSA-eligible health insurance policy.

If your new employer does not offer an HSA-compatible FSA, you’ll need to make a choice—either the HSA or the FSA. However, you can make HSA contributions equal to one-twelfth of the year’s total, multiplied by the number of months before you start contributing to the FSA, and you have until April 15, 2017, to contribute the money to the HSA for 2016, says Roy Ramthun, president of HSA Consulting Services. For example, if you start contributing to the FSA in July, you could still make half an HSA contribution for the year.

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The full year’s HSA contribution limit in 2016 is $3,350 if you have individual health coverage or $6,750 if you have family coverage, plus $1,000 if you are 55 or older. Money that was already in your HSA can remain in the account and be used tax-free for eligible medical expenses at any time, even if you no longer qualify to make new HSA contributions.

Or you can choose not to contribute to your employer’s FSA and instead make HSA contributions on your own. That may be the best idea because you can use the money from the HSA tax-free for eligible medical expenses in any year; the FSA money, on the other hand, must be used by the end of the year or March 15 of the following year, or you may be able to roll over $500 from one year to the next (the specifics vary by plan).

As long as you have the HSA-eligible high-deductible health plan, you remain eligible to contribute to the HSA, even if your employer doesn’t make contributions or offer a payroll deduction for employees, says Ramthun. In that case, you can send checks to the bank and deduct the contributions on your income tax return for that part of the year, he says. Ask your HSA administrator about the procedure for making contributions on your own, or you can search for a new HSA administrator. See Best Health Savings Accounts for Your Money for more information. See IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans for more information about deducting HSA contributions.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.