Health Savings Account

[PATAX]

Client called, married filing joint and two kids, has a hsa from a prior employer. New employer said it does not offer hsa. What are his options for current contributions? I am not an expert on details of health savings account rules. Thanks a million.

[TaxGuyBill]

Does his current health insurance continue to qualify for HSA contributions?

In other words, does he have a qualifying High Deductible Health Plan (and no other coverage) that allows a contribution to a Health Savings Account?

How many months does he (or will he) meet the qualifying health insurance requirements?

My GUESS is that his current employer does not offer a HSA because their health insurance have more coverage than a HSA-qualifying High Deductible Health Plan.

Did he already maximize his HSA contributions while with the old employer, or are you not sure how to determine that?

[IRonMaN]

"My GUESS is that his current employer does not offer a HSA because their health insurance have more coverage than a HSA-qualifying High Deductible Health Plan."

Or the employer just doesn't want to mess with a plan.

If the current health insurance plan is a high deductible plan, he can still make HSA contributions to a plan --------- assuming he hasn't maxed out his contributions yet.

[qbteachmt]

I was recently working with someone on the definition of High Deductible Health Plan. For purposes of being eligible to contribute to HSA, the health coverage has to specifically meet the IRS definition of HDHP. The people I was working with have a plan that, as an example, they pay the first $250 out of pocket, then they have a shared out of pocket, up to some amount like $2,500, then the plan kicks in at 100%. They considered that High Deductible, and opened an HSA. That isn't a HDHP as defined for purposes of HSA.

The employer or the employer's insurance broker can tell them if their coverage qualifies for having an HSA, even if the employer doesn't offer participation through payroll.

"For calendar year 2024, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage."

[PATAX]

@qbteachmt @IRonMaN @TaxGuyBill thanks for your help. I'm going to have to research this HSA more and study it.

[qbteachmt · Accepted solution]

Oh, there are so many provisions...

Even if no longer eligible to contribute, it's still theirs to use, and they can invest it, which you see on "financial hack" lists as "The IRS hates this one trick." They can take distributions after 65 and it's like a Trad IRA, no penalty, even if not used for medical costs. And even though Medicare has a "high deductible" supplemental plan, it isn't HSA eligible. Once you go on Medicare, no more contributions to HSA. There is a one-time conversion provision, from Trad IRA to HSA, that can be useful.

A weird provision kicks in when you have an adult child who is on the parent's plan up to age 26. "The individual must be covered by a High Deductible Health Plan (HDHP) (and have no other health coverage or be enrolled in Medicare) and they may not be claimed as a dependent on someone else’s tax return. Notably, the account owner does not have to be covered under their own healthcare plan, so a young adult who is covered under their parents’ HDHP family plan (and who cannot be considered a dependent on their parents’ tax return) would potentially be eligible to contribute to their own HSA. Further, while spouses can only make combined contributions up to the family maximum contribution limit ($8,300 in 2024), non-spouses covered under the same health plan can make contributions to their own HSA up to the family limit as well."

And HSA accounts are individually owned, like an IRA account. The catch up contribution must be put into the account owned by the person qualifying due to age. But the regular contribution can be split across each spousal account, or all in just one account.

Lots more stuff to know.

Did they need to make a corrective distribution?

Did they look into a State medical savings plan provision? My State has a highest tax bracket of 6.75%. We can each put up to $4,500 annual max in a regular, self-managed (= keep good records) checking account and deduct it on State taxes. You don't need to come up with $4,500 for that account. You can have, say, a $200 dental bill. You put $200 in your Medical Savings account, then pay your dental bill. Or, pay the bill with your credit card and reimburse yourself from that checking account. Later, put enough in the Medical Savings account to cover an office visit or prescription or xray. Later, put enough in there to buy the new prescription sunglasses. Just don't exceed $4,500 total deposits for the year. Again, the accounts must be individually owned. I opened one last year, because I emptied my HSA. Opened one this week for the spouse, same reason.