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Question: Can an employee who terminates employment but still has money in his flexible spending account (FSA) continue to use it for claims? Or could that money be rolled over into his current HSA with his new employer?


Answer:  Internal Revenue Code §125 regulations governing health care flexible spending accounts (HC FSA) do not permit “disbursements”, transfers or rollovers.  (Prior to 2007, there had been a limited time when a HC FSA participant had the option to rollover funds to his/her Health Savings Account (HSA) but that is no longer the case).  HC FSA contributions elected for the plan year can be used only for eligible expenses incurred during the employee’s coverage period in that plan year (or during a grace period or carryover period, if the particular employer’s HC FSA plan includes one of those provisions).  In the event that the employee terminates, the employee’s coverage period ends unless s/he elects COBRA continuation coverage.  For instance, if the plan year is January 1 and John’s last day of employment is June 30, he may submit claims for eligible expenses incurred between January 1 and June 30 only.  If, however, John elects COBRA to continue making HC FSA contributions (on an after-tax basis), he may continue to incur claims eligible for reimbursement.

In summary, unused HC FSA contributions cannot be “rolled over” to another FSA nor to an HSA. (Source: blog.thinkhr.com)
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