New Bill Allows Rollover of Old FSA/HRA Funds into HSAs, Starting in 2026

The “Flexible Savings Arrangements for a Healthy Robust America Act” is trying to solve a common problem: what to do with that leftover cash in a Flexible Spending Arrangement (FSA) or Health Reimbursement Arrangement (HRA) when you switch health plans. This bill, specifically Section 2, creates a new path for people to move those funds directly into a Health Savings Account (HSA).

Clearing Out the Old Accounts

Think of this as a special, limited-time consolidation offer for your health savings. Under the current rules, moving money from an FSA or HRA to an HSA is typically a no-go. This bill changes that, allowing a “qualified HSA distribution” from your old accounts into your new HSA, but there’s a catch: you can only do this if you’re moving to a High Deductible Health Plan (HDHP) after a significant break from having that kind of coverage. If you’re a worker who spent years on a traditional PPO plan with an FSA and are now finally making the switch to an HDHP, this provision is designed for you. It lets you bring your accumulated savings with you, making the transition financially smoother.

There are clear limits on how much you can move. The total transfer amount is capped by the existing dollar limit for cafeteria plans (which is currently $3,200 for 2024, though that number changes annually). If your coverage is for a family, that cap doubles. This means you can’t just dump a massive, decades-old balance into your HSA; the transfer is capped at a manageable, yearly limit.

The Trade-Off: Less Room for New Contributions

While this transfer sounds like a clean win, it comes with a financial trade-off that busy people need to track carefully. If you use this provision to move funds from your old FSA/HRA, the amount you transfer will reduce how much you can contribute to your HSA for that year. For example, if you transfer $2,000 from an old FSA, your annual HSA contribution limit will be reduced by that $2,000. The bill makes the calculation slightly complex by only counting the amount up to the balance increase in the FSA/HRA before the money was taken out, which means individuals and payroll administrators will need to keep extremely clean records to avoid over-contributing to the HSA and triggering tax penalties.

Administrative Hurdles and W-2 Changes

This bill doesn’t just affect the individual; it impacts the employers and administrators running these health plans. Once a person moves money out of an FSA or HRA and into an HSA, the remaining rules for that source account must be immediately restructured to be “HSA compatible” for the rest of the plan year. This is a significant administrative lift, requiring mid-year changes to benefit plan structures to ensure the employee doesn't lose their HSA eligibility.

Furthermore, the IRS wants to track every penny of these transfers. The bill mandates that the amount of any qualified HSA distribution must be reported separately on your W-2 form in a new box. For taxpayers, this is another line item to monitor and reconcile during tax season. These changes are not immediate; they apply to distributions that happen after December 31, 2025, giving employers and administrators a couple of years to prepare for the new reporting and plan restructuring requirements.