On March 28, the IRS Office of Chief Counsel released informal guidance concerning Health Savings Account (HSA) eligibility for individuals covered under a general purpose Health Flexible Spending Account (FSA) that includes the rollover option. Although the memorandum is not formal guidance, it is much needed direction for employers wondering how rollover affects HSA eligibility.
The memo advises that individuals covered under a general purpose FSA, even if only by virtue of rollover funds from the prior year, are ineligible to make HSA contributions for the entire following year. However, if allowed by the plan, an individual with rollover funds has two options to preserve HSA eligibility for the following year. Prior to the start of the following year, the individual could elect to (1) forfeit the rollover amount or (2) roll the leftover funds into an HSA compatible limited purpose FSA, if offered by the plan. To see the full text of the memo, click HERE.