Tag Archives: HSA

HSA 55+ Catch Up Contribution When Spouses Have Separate HSA’s

You are probably aware that Health Savings Accounts have a contribution limit that changes slightly each year, and that your coverage (self-only or family) determines how much you can contribute to your HSA. For example, the contribution limits for 2017 are $3,400 for self-only coverage and $6,750 for family coverage. In addition, there is a catch up contribution for those that are 55 or older before the end of the year in the amount equal to $1,000. The IRS defines this catch up contribution in Form 969:

Additional contribution. If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. For example, if you have self-only coverage, you can contribute up to $4,400 (the contribution limit for self-only coverage ($3,400) plus the additional contribution of $1,000).

To qualify for the 55+ catch up contribution, you must be 55 within the tax year, be HSA eligible, and not be enrolled in Medicare – basically all of the stuff to be able to contribute to an HSA. The only addition is the age constraint thrown into the mix. This is generally easy enough for self-only coverage, but what do you do if your spouse is over 55 and you are not? Or, what do you do if both you and your spouse have separate Health Savings Accounts? You may be surprised to learn that the $1,000 can go on different lines on Form 8889 based on your coverage situation.

Catch Up Contribution follows the HSA Holder

A guiding principle is the $1,000 catch up contribution follows the HSA account holder, i.e. you or your spouse. To determine your household’s eligibility for a 55+ additional contribution, you must determine if the HSA account holder is age 55 or older by December 31st of the tax year. If they are, you can contribute to additional $1,000 to their HSA account.

The downside is your household may not qualify based on arbitrary factors of who opened the HSA and their age. For example, assume you are over 55 but your spouse is not. If your spouse owns the HSA, neither can contribute a 55+ catch up contribution for that year, until the spouse turns 55. Only then can one extra contribution be made, even though you are already 55 or older. Again, the 55+ contribution follows the account holder, so your age (as a non account holder) is irrelevant. The risk here is you may be shortchanging your household that $1,000 catch up contribution if the HSA account holder is younger.

[The way to get around this is, assuming you are on family coverage, to open an HSA in your name, so that you can contribute that $1,000 (assuming 55+) on top of the shared regular HSA family contribution limit. See next sections.]

Both Spouses have Separate HSA

Remember when we said earlier that the 55+ catch up contribution follows the HSA account? That also applies if you have family coverage and both spouses have their own HSA in their name. However, the rule still holds that only account holders 55 or older during the tax year can contribute the $1,000 catch up contribution to their HSA.

As another example, if you have family coverage with separate HSA’s and you are over 55 and your spouse is under 55, only your HSA can receive the $1,000 catch up contribution. Since this scenario requires the HSA’s to split the family contribution limit among them, for 2017 you will divide the $6,750 up however you like but your account must have the catch up contribution in it, if you make that extra contribution.

Thus, valid contributions for 2017 might look like this for the 55+ / < 55 accounts:

  • $6750 / $0
  • $0 / $6750
  • $3375 / $3375
  • $7,750 / $0 ($1,000 catch up used)
  • $1,000 / $6,750 ($1,000 catch up used)

In contrast, the following contribution combinations are invalid for 2017 for 55+ / < 55 accounts:

  • $0 / $7,750 (can’t put $1,000 in < 55 account)
  • $100 / $7,650 / $0 (must put all $1,000 in 55+ account)
  • $999 / $6,751 / $0 (must put all $1,000 in 55+ account)

Both Spouses 55+ and have Separate HSA

If both you and your spouse are over 55, have your own HSA’s, and are on family HSA coverage, you can both contribute the $1,000 catch up contribution to each of your HSA’s. For 2017, assuming full year coverage, this would be a household HSA contribution of $8,750 ($6,750 + $1,000 + $1,000). Again per Publication 969:

If both spouses are 55 or older and not enrolled in Medicare, each spouse’s contribution limit is increased by the additional contribution. If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,750. Each spouse must make the additional contribution to his or her own HSA.

This is a secret HSA backdoor to increase your contribution limit above and beyond the stated family contribution limit, all by opening an HSA for each spouse. Many people don’t know that they can contribute so much money to an HSA as a family. Doing so should not bring additional cost, as it requires simply opening an HSA in your name. The cost being your time, a tax form, and perhaps an account minimum, but you gain an extra $1,000 / year in triple tax advantaged contributions.

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Note: if you have an HSA, please consider using my service EasyForm8889.com to complete Form 8889 come tax time. It is fast and painless, no matter how complicated your HSA 55+ contribution situation.


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TrackHSA.com – manage your HSA purchases, receipts, and reimbursements online for free

After being unhappy with my combination shoebox / Excel file HSA tracking system, I designed and created TrackHSA.com to better manage my Health Savings Account. TrackHSA is the first website that allows anyone to track their HSA account activity securely online for free.

TrackHSA record keeping

HSA Account 
Summary

HSA’s have a lot of moving parts including funding, taxation, purchases, reimbursements, and government required record keeping. Most HSA custodians (banks) track the in’s and out’s of your actual bank account, but there is little qualitative information about what those transactions were for and how they were justified. The government requires this sort of information for tax filing and it was a pain to maintain. TrackHSA solves this by creating a log of all your HSA eligible purchases, their details, whether or not they have been reimbursed, and allows you to attach a receipt to justify the expense.


HSA receipt image  glasses

It started based on my personal aggravations with my HSA:

  • keeping receipts in a shoe box
  • manually maintaining purchase history in Excel on one computer
  • not knowing how much I could withdraw from my HSA account to reimburse credit card purchases
  • incomplete information when tax time rolled around

TrackHSA addresses this by:

  • uploading a receipt to each purchase, storing it safely in the cloud
  • maintaining a purchase history securely online, accessible from anywhere
  • calculating your reimbursable amount based on all prior transactions
  • suggests additional detail for each purchase to help with IRS Form 8889


health_savings_account_storage

Hopefully you find it useful, the site is free and the data is stored securely and anonymously on Google’s servers.

Please contact me at Evan@HSAedge.com if you have any questions. If you know someone who would benefit from this free service, please share it with them.

Can You Cash Out an HSA?

After saving diligently, using either individual or employer contributions, you may want to take your money out of your health savings account and use it for something different. Before you go to the ATM or HSA website and withdraw all of your HSA funds, take heed: there may be tax consequences to improperly withdrawing money. Let’s discuss the implications and options.

Part of the advantage of an HSA is that the money is triple tax advantaged – you are able to save significantly on taxes by contributing to the HSA. The catch is, this money is required to be used for qualified medical expenses. As such, the government does not look fondly at taking a tax advantage and then not playing by the rules.

Nevertheless, let’s discuss 3 options for removing money from an HSA account:

1) Non Qualified Withdrawal (Penalty Tax)

This is the hard way, just rip the money out and pay the price. From the IRS HSA page:

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax.

Yes, that 20% tax sure bites, as it was your money to begin with but it is stuck in a “special” government account. That said, this is always an option. When you file your IRS Form 8899, you will have to call out this withdrawal and the tax will factor in.

2) Use for Qualified Medical Expenses

This is the right way to remove funds from an HSA account, paying for (or reimbursing) qualified medical expenses. Assume you have a doctor appointment that you pay for out of pocket using a credit card, debit card, or cash. Since this is a qualified medical expense, you are immediately entitled to reimburse yourself for that expense out of your HSA. This is simply a transfer from HSA to other account for the amount of the expense, justified by the receipt. Little by little, you can gradually drain your HSA as you use it to pay for qualified medical expenses.

Alternatively, you can preempt this situation by building up a nice stack of pending reimbursements. This would involved paying for medical expenses out of pocket and delaying your reimbursement from the HSA. You are then entitled to that reimbursement at any time. Eventually, these reimbursements can add up and you can withdraw a large sum from your HSA.

3) Invest your HSA, offset by separate account withdrawal

We know that you can invest your HSA account in stocks, bonds, ETF’s, etc. to let it grow over time. If you need cash, consider other sources first. Instead of raiding your HSA, consider withdrawing funds from a different investment account with no / less penalty. Then, you can invest your HSA to “replace” your prior withdrawal.

For example, assume that I need $2k for some reason. Instead of withdrawing from my HSA and facing a penalty, I could withdraw this from a more liquid account (such as an investment account). I could then offset this by investing my HSA in the same instruments that I just sold, so my investment position is maintained. This could also work if the other account (such as a 401(k)) has a withdrawal penalty but it is smaller (say, 10%) than that of the HSA (20%).

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Note: if you have an HSA, you need to file IRS tax Form 8889 each year you make contributions or withdrawals. Please consider using my automated service EasyForm8889.com to quickly and easily generate your HSA Form 8889. In 10 minutes, it asks you simple questions that correctly populates Form 8889 no matter your situation and delivers you the completed PDF.


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