Category Archives: Reader Question

Changed HSA Custodian – Prior Year Contribution?

This question was sent in by HSA Edge reader Charlie:

I have had an HSA for a number of years. This year, in February 2019, I opened a new HSA at a different institution and transferred the balance from my old account. Now, I’m wondering can I make a contribution to this new HSA for 2018? I didn’t contribute to the old, closed account for 2018.

Contribution limit is by owner, not account

The short answer is, “Yes”, you can contribute to the new HSA given your eligibility last year. It does not matter at which bank (or, “custodian”) you make your HSA contribution, just that you were an eligible individual for the year in question. Just make sure you flag it as a prior year contribution to account for it in 2018 as opposed to 2019.

The reason is the HSA laws are not concerned with where you deposit the funds. Instead, they calculate the amount you are allowed to contribute, your contribution limit, by year and leave it to the account holder to contribute them to the HSA of their choice. In fact you can contribute that amount to multiple HSA’s (e.g. at different banks) if you like. There isn’t a relation or enforcement between the HSA you had open during the eligible period and where you must contribute the funds.

The only timing question related here is for qualified medical expenses. Per Form 969, qualified medical expenses (those payable with HSA funds) must occur after you open the HSA. All of your expenses would have occurred after you opened your original HSA, so this does not apply, but is something to keep in mind.

Note: If you need help preparing your HSA tax form 8889, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

Short Term Investment Tax Implications for HSAs

This question was sent in by HSA Edge reader Marc. Feel free to send in your own question.

What is the tax consequence for holding an investment through an HSA brokerage account for a short term? Iknow that HSAs are tax free if you obey the rules of the HSA, so I’m assuming there’s nothing limiting the length of time held in an investment?

Tax Free Growth

You are correct that there is nothing that limits or penalizes investment length in the HSA. As part of the HSA’s triple tax advantage, investments grow tax free. This means that capital gains, either short or long term, are not assessed on any growth in the HSA. Per IRS Form 969:

The interest or other earnings on the assets in the account are tax free

In a non-tax advantaged (regular “brokerage”) account, a tax liability is created when earnings occur from buying and selling a financial instrument. The rate of those capital gains is determined by how long the investment is held. That amount must be aggregated at tax time and paid, with any losses offsetting taxes on gains. This is not the case with an HSA, and this is a benefit to the user in terms of:

long term growth
tax savings
reduced paperwork

Thus, the HSA can be used as a “trading vehicle” without penalty, although the risk of that strategy is up to the account holder to decide.

FYI Fidelity recently started offering HSA’s with no fees and very good investment options.

Note: If you want help filing your HSA tax forms, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

Secondary HSA Insurance for Adult Child

This question was sent in by HSA Edge reader Holly. Feel free to send in your own question.

I have an employee (who has Cigna insurance for himself and his family) whose daughter is now employed and has insurance of her own. He would like to leave her on his plan until she turns 26 in October. She would then have her insurance as her primary and dad’s insurance as secondary. Is this allowed?

Parent with Adult Child with Secondary Insurance

Let’s address this from two perspectives: for one, I see no problem for the employee to have his daughter on his health plan. Assuming he has an HDHP, he is eligible to contribute to an HSA using the family contribution limit, even if the daughter has duplicate coverage. He can carry on and has no risk here. This is confirmed by one of my favorite clauses of Form 969:

Self-only HDHP coverage is an HDHP covering only an eligible individual. Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual whether or not that individual is an eligible individual).

Adult Child with Secondary Insurance

As for the daughter, I don’t think anyone is stopping her from having multiple health insurance plans. And it is true that adult children on their parent’s HSA can open their own HSA. That is a great feature and allows them to contribute a lot.

Even if she has HSA eligible insurance, there is a further test. In order to contribute to an HSA, you need to be an eligible individual. Per Form 969:

HSA-what-is-an-eligible-individual

Notice #2 above. Her “other” coverage, whether it is the primary or secondary, almost certainly does not fall into the exceptions listed in Form 969. Thus, with 2 health insurance plans, she would violate the “Other Health Coverage” provision. She would not be an eligible individual with dual coverage, and would be unable to contribute to the HSA during those months with dual coverage.

Over contribution

Note that contribution limit is pro rata by month. For example, if she enrolls for 3/12 months on 1 insurance plan, she earns 3/12 of the contribution for the year. When she joins that second plan for say the remaining 9/12 months, she doesn’t earn contribution limit for those months. But she would still be able to contribute the 3/12 or 25% of her limit.

If this situation existed in 2018 and she made contributions, she likely over contributed, and has until tax day to remove any excess contributions and get her taxes corrected. If it is a current year situation, she can correct it up until tax day next year.

If she is keen on the HSA I would avoid the 2nd plan.

Note: If you want help calculating your HSA contribution limit and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.