Q: May I use my Health FSA or HRA to fund my HSA?

By December 2, 2009November 18th, 2015Frequently Asked Questions

A:  Yes, beginning with tax year 2007, you may make a one-time contribution to an HSA of the amount distributed from your Health FSA or HRA without violating the rules for such arrangements.  However, the contribution must be made through a direct transfer to your HSA.

The amount that can be distributed from the Health FSA or HRA may not exceed an amount equal to the lesser of:

  • The balance in the Health FSA or HRA as of September 21, 2006 or;
  • The balance in the Health FSA or HRA as of the date of the distribution.

The balance in the Health FSA or HRA as of any date is determined on a cash basis (i.e., expenses incurred that have not been reimbursed as of the date the determination is made are not taken into account).

Any amounts contributed to the HSA are excluded from your income for income and employment tax purposes and are not taken into account in applying the maximum deduction limitation for HSA contributions.  Please note that this provision is limited to one distribution with respect to each Health FSA or HRA of the individual.

Here is an example:
Let’s say you had a balance in your Health FSA as of September 21, 2006 of $2,000 and the balance in your account as of January 1, 2008 is $3,000.  Under the new rules, you may distribute an amount not to exceed $2,000 from your Health FSA to your HSA.  However, if you cease to be eligible as of June 1, 2008, the $2,000 contribution amount will be included in your gross income and subject to a 10 percent additional tax. If instead, the distribution and contribution are made as of June 30, 2008 when the balance in the Health FSA is $1,500, the amount of the distribution and contribution is limited to $1,500.