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Here is my situation:

  • I have the high deductible insurance plan. The coverage includes my wife, dependent daughter and mysef. I contribute to an HSA.

  • My wife has her own insurance through her employer. She is the only person on that coverage. She contributes to an FSA.

Can we use funds from her FSA for medical expenses incurred by my daughter and myself?

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Yes, FSA funds can be used to pay for medical expenses incurred by spouse and dependents (so long as the dependents have little to no income and can't be claimed by another).

However, her FSA apparently makes you ineligible to contribute to an HSA. According to this HSA FAQ from WageWorks:

Even though you are not covered by your spouse’s health insurance, the IRS has determined that your spouse’s FSA is considered “other insurance” that makes you ineligible for an HSA. An exception to this rule exists for limited purpose FSAs (those that cover vision and dental expenses only) and you would be eligible for an HSA if your spouse had a limited purpose FSA.

I'm not sure if it could be simply rectified by stopping contributions to the FSA or if it would have to be closed out entirely. The whole idea is intriguing so I'll likely research more later and update.

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    Intersting, I have never heard of this. Why in the world would an FSA be considered insurance? It is just an account that someone has put money into. My spouse has an FSA even though they have declined medical coverage with their employer. – Learning2Save Jan 17 at 19:16
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    IRS Pub 969 has this information: irs.gov/publications/p969 under heading "Other employee health plans": Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally can’t make contributions to an HSA. I can't answer the "other insurance" quoted by WageWorks, but a FSA generally cover self, spouse and dependents, making HSA contributions ineligible in this situation. You can still have an HSA, but you are restricted to limited purpose FSA if you want to contribute to an HSA. – Allen Jan 17 at 21:37
  • I'm still not really understanding what it means it be "covered by a health FSA". – Learning2Save Jan 18 at 15:58
  • To my layman's eyes and ears, it sounds like "covered by a health FSA" means "you have an FSA and you're eligible to be reimbursed by that health FSA". You can always get the limited purpose FSA to cover vision and dental. – Allen Jan 18 at 19:18

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