maximzing HSA contributions when changing jobs

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Hoosier CPA
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maximzing HSA contributions when changing jobs

Post by Hoosier CPA » Sun Jun 17, 2018 2:07 pm

We have been maxing out our HSA contributions the past few years, both for the tax benefits and because we have a lot of medical expenses.

I am now in the process of changing jobs and wanted to figure out how to best max the HSA contributions for 2018. My previous job ended on May 15. The megacorp closed the local office and I received severance and up to 3 months of health insurance to stay through the transition date. My new job starts on June 26. I'll be covered for health insurance through my old job through the end of June and then through the new job starting on July 1.

I don't have a lot of details for the new health insurance plan yet, but there is a high deductible option with an HSA. As such, I presume if I make the maximum election, they will withhold from my paychecks an amount equal to 50% of the annual max through the remainder of 2018 ($3,450 of the $6,900).

To date in 2018, through with-holdings from my paychecks, I have contributed $2,906. It appears I can now make contributions to my HSA account outside the payroll system. Is there any reason I should not now make a contribution of the $544 that would be left of my limit for 2018 ($6,900 annual limit, less $3,450 which will be made during 2nd half of 2018, less $2,906 already contributed)? Just trying to think this through...

47Percent
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Re: maximzing HSA contributions when changing jobs

Post by 47Percent » Sun Jun 17, 2018 2:40 pm

I would just put in the max contribution of $6,900 now, calculate the eligible limit at the end of the year when everything settles, and then remove the excess contribution before April 15th of next year.

But if you are tight on cash flow, you need to figure out what works for you.

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grabiner
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Re: maximzing HSA contributions when changing jobs

Post by grabiner » Sun Jun 17, 2018 9:14 pm

You can contribute the full amount to an HSA even if you switch to a HDHP mid-year, as long as you remain covered by a HDHP through the end of next year.

See the "last-month rule" in IRS Publication 969 for details.
Wiki David Grabiner

47Percent
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Re: maximzing HSA contributions when changing jobs

Post by 47Percent » Sun Jun 17, 2018 9:52 pm

grabiner wrote:
Sun Jun 17, 2018 9:14 pm
You can contribute the full amount to an HSA even if you switch to a HDHP mid-year, as long as you remain covered by a HDHP through the end of next year.

See the "last-month rule" in IRS Publication 969 for details.
Just be aware that if you are opting to use the last month rule, but fail to be HSA eligible for the entire 12 month period in the subsequent year, you will have to include all the ineligible contribution as income for that year, *and* it will be subjected to the additional 10% tax.

Spirit Rider
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Re: maximzing HSA contributions when changing jobs

Post by Spirit Rider » Sun Jun 17, 2018 10:56 pm

Why are we even talking about the last month rule. The OP has an HDHP/HSA through 6/30 and then plans on one 7/1 - 12/31. There is absolutely no need for the last month rule, he will be HSA eligible for the entire year. If they don't have an HDHP/HSA for the rest of the year, they are not eligible for the last month rule anyways.

The OP should not contribute the remainder of the $6900 directly. The OP should continue to contribute on plan through the end the year pre-tax/pre-FICA through payroll deduction.

47Percent
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Re: maximzing HSA contributions when changing jobs

Post by 47Percent » Sun Jun 17, 2018 11:33 pm

Wow! If it is pre-FICA deduction, definitely yes.

I only mentioned the caveat on the last month rule as it was mentioned, and I once exercised it without knowing the fine-print -- but it didn't affect me.

Hoosier CPA
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Re: maximzing HSA contributions when changing jobs

Post by Hoosier CPA » Mon Jun 18, 2018 10:18 am

This might be a dumb question - but please confirm that HSA contributions reduce FICA taxes regardless of whether the contribution is made via payroll (with-holdings) or made directly to the HSA account. In the latter, the tax savings would be provided when the tax return is filed.

Spirit Rider
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Re: maximzing HSA contributions when changing jobs

Post by Spirit Rider » Mon Jun 18, 2018 10:41 am

Hoosier CPA wrote:
Mon Jun 18, 2018 10:18 am
This might be a dumb question - but please confirm that HSA contributions reduce FICA taxes regardless of whether the contribution is made via payroll (with-holdings) or made directly to the HSA account. In the latter, the tax savings would be provided when the tax return is filed.
The HSA contribution is only pre-tax/pre-FICA when made by payroll deduction through a Section 125 "cafeteria plan". Direct HSA contributions are deducted on your Form 1040. but are still subject to FICA.

Hoosier CPA
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Re: maximzing HSA contributions when changing jobs

Post by Hoosier CPA » Mon Jun 18, 2018 11:05 am

Spirit Rider wrote:
Mon Jun 18, 2018 10:41 am
Hoosier CPA wrote:
Mon Jun 18, 2018 10:18 am
This might be a dumb question - but please confirm that HSA contributions reduce FICA taxes regardless of whether the contribution is made via payroll (with-holdings) or made directly to the HSA account. In the latter, the tax savings would be provided when the tax return is filed.
The HSA contribution is only pre-tax/pre-FICA when made by payroll deduction through a Section 125 "cafeteria plan". Direct HSA contributions are deducted on your Form 1040. but are still subject to FICA.
Thanks. If that is the case, my best bet will be to see if I can get my new employer to withhold the remaining amount, up to my limit, over the remainder of the calendar year. At my previous job, the max I could get them to withhold was the annual limit divided by the number of pay periods in the calendar year (i.e., if I didn't start with the max in January, I wasn't able to catch up - hopefully that's not standard practice everywhere). I assume most employers would be ok with you taking as much as you'd like, as it reduces their payroll taxes as well.

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