The Treasury and the IRS have clarified the interaction of the 2½ month Flexible Spending Arrangement (FSA) grace period established earlier this year (see Prohibition of deferred compensation for Cafeteria Plans ) and eligibility to contribute to Health Savings Accounts (HSAs). The guidance clarifies that coverage by the FSA grace period disqualifies an individual to contribute to an HSA during the grace period. However, guidance is provided on how an FSA can be amended to enable a covered individual to contribute to an HSA during the grace period. The guidance also clarifies a number of technical questions concerning the grace period.

...back to 24 November 2005

Further information:
Health Savings Account Eligibility During A Cafeteria Plan Grace Period

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The IRS has announced relief arrangements for certain health plans with non-calendar renewal dates that do not qualify as high-deductible health plans (HDHPs).

Some states require that health plans provide certain benefits without regard to a deductible, or with a deductible below the minimum annual deductible, e.g., first-dollar coverage or coverage with a low deductible. These health plans are not HDHPs and individuals covered under these health plans are generally not eligible to contribute to Health Savings Accounts (HSAs).

In 2004, transition relief was provided that treats health plans as meeting the requirements when the sole reason the plans are not HDHPs is because of certain state-mandated benefits. For months before January 1, 2006, otherwise eligible individuals covered under these health plans will be treated as eligible individuals and may contribute to an HSA. The transition period provided in 2004 covers months before January 1, 2006, for state-mandated requirements in effect on January 1, 2004.

...back to 24 November 2005

Further information:
Health Savings Accounts

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