Category Archives: Reader Question

Contributions when Changing to non-HSA Eligible Coverage

This was a reader question submitted by HSA Edge reader Kevin. If you have a question get in touch and we’ll try to help. Email us at evan@hsaedge.com any time.

My wife and I began a HSA-eligible policy August 1 of 2016. On January 1, we will switch to a non HSA-eligible plan… and will NOT be eligible to make HSA contributions in 2017 under this plan. If so, does that mean we are ALSO not able to make contributions in 2016 (without failing testing period and paying penalty)? This seems excessive. It would seem reasonable to allow a person to make a pro-rated (5 month) HSA contribution for 2016 in this case. But I cannot find confirmation anywhere that this is allowable.

If I understand you correctly, you have HSA eligible coverage from Aug through Dec of 2016. On January 1st 2017 you are switching to a new plan that is HSA eligible but ACA modifications make it de facto HSA ineligible.

If that is true, you can definitely still contribute to your HSA for 2016 but on a pro rata basis, i.e. proportionate for the months you had coverage. By my count that is 5/12 months so your contribution limits would be:

Single coverage = 5/12 * $3,350 = $1,395.83
Family coverage = 5/12 * $6,750 = $2,812.50
If you are 55 or older add 5/12 * $1,000 = $416.67 to above amounts

Using the Last Month Rule would allow you to contribute the full amount (e.g. $3,350 or $6,750) to the HSA, but as you point out, you would fail the Testing Period next year, resulting in penalties. The key point (that I will make clearer in that article) is the Last Month Rule is optional and if you don’t use it, you can just contribute for those months that you had coverage. Often this is the safest way to play it.

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How to Open an HSA if your Employer Doesn’t Offer One

This was a reader question submitted by HSA Edge reader Alice. If you have a question get in touch and we’ll try to help. Email us at evan@hsaedge.com.

Our health insurance is through my husband’s work. We have a HDHP and an HSA account. Our oldest child is now 22 and out of college, employed full time, and we will not be declaring him a dependent on 2016 taxes. He is still on our health insurance plan, as it was the same cost to us.

My understanding is we cannot pay for his medical expenses with our HSA account, since he is not our dependent. I believe he is allowed to open his own HSA account. However, his work says he cannot open it through them, since he’s not on their health plan. My husband’s employer has told us he can open his own HSA but he can only contribute post-tax dollars, completely negating the purpose of the HSA account. What is the law and where/how does he open his own HSA account and contribute pre-tax earnings?

Thanks for your email. I only recently learned about the adult child HSA and it is a great benefit. Everything you say is true: your son has HSA eligible insurance, he can have his own HSA, his employer does not offer an HSA, and you cannot pay for his medical expenses using your HSA. There is just one key part missing that provides the tax benefit.

Your son does not need to have an employer open a Health Savings Account for him, he can do this on his own at whatever banking institution he likes. The only requirement is that you have HDHP eligible health insurance, which he does. All he has to do is some research on banks that offer HSA’s and go online and click “Open HSA Account” and fill out the forms. When selecting a provider, I would look at the fee structure because that can vary; I have had success with HSAbank.com.

In fact, many people establish HSA’s without their employer’s help. Employer’s that offer actual Health Savings Accounts (via a 3rd party banking institution) are likely also making contributions to the employee’s HSA. So in that regard it makes sense that they help you open the account as they will be directing their (and possibly your) contributions there. However, this is not at all required. There are many people (for example, the self employed) who have HSA eligible insurance and open up their own HSA account. Totally legit and acceptable, all the law states that you need is HSA eligible insurance.

As for tax benefits, it is true that your son will contribute post tax dollars to the HSA. However, this amount will be deducted from his income when he files his yearly taxes (see: Automatic vs. Manual Contributions), reducing the amount of tax he owes then. Specifically, when he completes HSA Form 8889, the amount he contributes to the HSA will flow down to Line 13, which will make its way onto Form 1040 and reduce his taxes.

So in summary, he does not need to contribute pre-tax earnings. Instead, his post-tax contributions will be converted into pre-tax contributions once he files his taxes, so he can enjoy all of the benefits of the HSA.

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Contributing to HSA while unemployed on COBRA insurance

This was a reader question submitted by HSAedge reader Helen, send your questions to evan@hsaedge.com

I am unemployed and not receiving unemployment benefits. I am participating in COBRA from my previous employer. Am I allowed to make HSA contributions if my husband is self-employed and does not have health insurance through his company?

You are allowed to make Health Savings Account contributions while using COBRA, assuming the plan you continue is HSA eligible. My take is that COBRA is a program that forces employers to offer the same insurance to past employees, although the pricing isn’t always the same. Thus, if you use COBRA to continue an HSA eligible plan, everything functions as normal, since you are continuing coverage under the same plan. COBRA just guarantees your access to that same plan. Note that employers are not required to continue making any sort of contributions into the HSA.

From the CobraInsurance website FAQ:

When the employee and dependents become eligible for COBRA, they can take this account with them. The employee can still contribute monies to the HSA and keep it for as long as they want. The employer is no longer obligated to contribute money or responsible for administrating the HSA when the employer or dependents are eligible for COBRA.