Category Archives: Reader Question

HSA Additional 55+ Contribution When Turning 55

This question was submitted by HSA Edge reader Steve. Feel free to send in your question today to evan@hsaedge.com.

I will be age 55 on 12/4/18 and have single-person HSA coverage. Must I wait until I am actually 55 in December to make the $1,000 extra contribution, or can I begin making monthly contributions now and throughout the rest of 2018 that total an extra $1,000? My employer won’t allow extra contributions until I am actually 55 on 12/4/18.

Making an HSA 55+ Catch Up Contribution

Health Savings Accounts have a great feature for those 55 and older that allows you to contribute an additional amount each year, currently set at $1,000. This extra amount is added to your self-only or family contribution limit, which allows you to contribute your self only or family amount, plus the additional $1,000 each year. We like this because it lets you contribute more money to your HSA. Now, this assumes that you did not end coverage during the year, in which case the self-only and catch up contribution are pro-rated for the months you had coverage. Either way, it is a great way to get some extra funds into your HSA.

The question at hand is one of timing. Can you make the 55+ contribution any time during the year you turn 55? Or, if you are not yet 55, do you need to wait until your 55th birthday to actually make the 55+ contribution? If the latter was the case, that leaves Steve with only 2 weeks before the end of the year to make that contribution. Moreover, his employer is telling him he needs to wait until this time to make the contribution. How do they track and enforce that? For example, if I am contributing 1/12 of my limit per year, including the $1000, I am “under” contributed for about the first 10 months of the year.

55+ Contribution Can Be Made Anytime During Year

Luckily, the IRS opines on this matter indirectly in Form 969 and it is favoriable to the consumer:

HSA-55+-additional-catch-up-contribution-timing

Here, the IRS states that the eligible individual who is 55 or older by the end of the tax year has their contribution limit increased. Remember that HSA contribution limits are per year, so you only have 1 contribution limit for a given year. Generally, you can determine that limit on January 1st (barring any change in coverage). Contrary to what Steve’s employer states, the IRS does not say that the catch up contribution limit is only increased pro rata by age, or only applies once the person actually turns 55, or can only be contributed to once the person is 55. It simply states that if you will be 55 during the calendar year, your contribution limit is increased. Thus, the reality is you can make that contribution whenever you see fit.

In Steve’s case, he will be 55 in December at the end of 2018. Thus, his 2018 contribution limit is increased for the entire year. That means that he can begin contributing his 55+ contribution as early as January 1st, 2018. He does not need to wait until he is actually 55 to make that catch up contribution.

I advised Steve to take this up with his employer and HSA custodian. While an employer can create any rules they wish, this is likely a simple oversight of how HSA plans function. Hopefully they can change this to align with how HSA’s work and make it easy on people like Steve who have late birthdays. It also allows people to gain the benefits of front loading their HSA contributions early in the year.

Note: if you need help accounting for your 55+ contributions on your HSA taxes, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

HSA Contributions from Others on Form 8889

This question was submitted by HSA Edge reader James. Feel free to send in your question today to evan@hsaedge.com.

I read your article on “Contributing to HSA’s with a Cafeteria Plan” and have a question. I am a federal employee with the Aetna High Deductible Health Plan. The government automatically deducts my premiums from each paycheck pretax through premium conversion. Aetna contributes $1,500 to my HSA each year. Where do I report Aetna’s $1,500 contribution on Form 8889?

One of the benefits of Health Savings Accounts is that literally anyone willing can make a contribution to your HSA on your behalf. This means that if you have a parent, grandparent, rich uncle, friendly employer, or random organization that wants to give you money for your medical care, you can accept it in your HSA.

HSA Contributions from Others are Tax Deductible

As if receiving free money wasn’t enough, the IRS gives you another special bonus for HSA contributions from others on your behalf. Incredibly, these contributions from others are deductible on your return. Yes, you read that right: if you receive HSA contributions from another person, you receive a tax deduction for this money. Per Form 969:

HSA-contributions-from-others-on-your-behalf-tax-free

In the above, “eligible individual” is the term for the HSA account holder. The result of this amazing tax treatment is that it trues up these other funds going into your HSA, and in effect gives them the same tax preferred status as your regular HSA contributions. In other words, if you receive a an HSA contribution from another on your behalf, you get the contribution as well as the deduction equal to the contribution amount times your marginal tax rate. Score!

Reporting Other HSA Contributions on Form 8889

Come tax time, reporting these contributions on Form 8889 can be a complication. Two lines on that form are used to report regular contributions to the HSA. Line 2 is used to report pre-tax contributions that you made during the year. Amounts on this line will reduce your taxable income. Line 9, on the other hand, is called Employer Contributions and amounts here do not reduce your taxable income. The “contributions from others” do not fall neatly into these categories, and are sort of in an “in between” zone.

Luckily, the Form 8889 instructions provide guidance on this situation. Comparing the two tax form lines, you can see that this situation is explicitly handled:

HSA-Form-8889-Line-2-tax-deductible-contributions
HSA-Form-8889-Line-9-employer-contribution-info

Per your question, it is not entirely clear if Aetna is contributing as your employer or as another entity. Since they are an insurance company, my guess is as another entity i.e. as another on your behalf. In this case, it is the best possible scenario, as you get the free money and get to deduct the contribution.

Note: if you need help recording your contribution on your HSA taxes this year, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

Paying for Medical Expenses with Prior Year HSA Contributions

This question was submitted by HSA Edge reader Richard. Feel free to send in your question today to evan@hsaedge.com.

My tax adviser informed me I can set up an HSA for 2017 if I do so quickly before the tax filing deadline in April. However, I don’t have a health savings account yet so need to open one. They also told me I can reimburse myself for the eligible out of pocket healthcare expenses that I had in 2017, from my 2017 contributions. However, the HSA custodian tells me I am not allowed to do so. What are the facts?

Your tax adviser offered good advice about opening the HSA and using prior year contributions to fund 2017. Even though we are in the new year, as long as you make the contributions by the tax deadline, you can apply them to the prior year. That said, the credit union is correct that HSA funds can only be used for expenses occurring after the HSA is established. This means that you cannot use the prior year contributions in you newly created HSA to reimburse prior year medical costs. This is called out in IRS Form 969:

HSA-expenses-before-opening-HSA

While you can make contributions for 2017, no medical expenses in 2017 will be considered qualified medical expenses. Even though you lose the ability to pay for those medical expenses with HSA funds, you at least make the contribution, gain the tax deduction, and can pay for future medical expenses with your HSA funds. This is on top of whatever you do in the current year, so assuming you have the funds to contribute, this is the best remaining option.

You cannot reimburse medical expenses that occur before the HSA is established

Note that if you had opened the HSA during the year, you could have used the prior year contributions to pay for qualified medical expenses. Since your HSA was opened after the medical expenses occurred, you cannot use the HSA (ever) to pay for them.

The takeaway is that it is important to open your Health Savings Account if you plan on contributing to it. Delaying this runs the risk that medical expenses will not be qualified medical expenses.

Note: to track valid prior year expenses that you plan to reimburse, consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online, no matter how far in the future you choose to reimburse them.