HSA Contribution - 2021

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willyd123
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HSA Contribution - 2021

Post by willyd123 »

I am planning to make the maximum 2021 HSA contribution of $9,200 ($7,200 + $1,000/each for catch-up contributions for spouse and myself). I realize that the maximum I can put into either my or my wife's HSA account is $8,200. So I can deposit $8,200 into my HSA and $1,000 into my wife's HSA or vice versa or 50% in each, etc. Does anyone see any magic in terms of the mix? Currently my HSA has $106,000 and my wife's has $1,000. I don't think it matters but wanted to see if I was missing anything. Thanks.
Mike Scott
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Re: HSA Contribution - 2021

Post by Mike Scott »

As far as I know, you have it. As long as the second $1000 catchup is in a separate account I don't think it matters which one unless there is something about employer contributions or investment options available or something else that complicates your choice. We are maxing the family contribution plus one catchup from my wife's pay check and I add $1000 directly to my own HSA.
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FiveK
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Re: HSA Contribution - 2021

Post by FiveK »

willyd123 wrote: Sat Nov 21, 2020 1:08 pmDoes anyone see any magic in terms of the mix?
Nope. Given identical investment choices, the distributive property of multiplication guarantees that your combined results will be identical, no matter how you split the contributions.
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willyd123
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Re: HSA Contribution - 2021

Post by willyd123 »

Thanks to both of you.
Pete3
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Re: HSA Contribution - 2021

Post by Pete3 »

Check on fees - some HSA's charge a monthly fee but waive them once the account hits a certain balance - if that is the case with the $1000 HSA you may want to accelerate contributions there to get it up to the level where fees are waived.
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MP123
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Re: HSA Contribution - 2021

Post by MP123 »

The younger spouse may have additional time to make contributions once the first is on Medicare. Something to consider if you're interested in balancing the accounts.

Also consider any possible estate planning issues, beneficiaries, and so on.
cas
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Re: HSA Contribution - 2021

Post by cas »

willyd123 wrote: Sat Nov 21, 2020 1:08 pm Does anyone see any magic in terms of the mix? Currently my HSA has $106,000 and my wife's has $1,000.
Publication 969 has a rule that can catch people by surprise having to do with using an HSA to reimburse the Medicare premiums for a spouse:
if you, the account beneficiary, aren’t 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally aren’t qualified medical expenses.
So, assuming you were planning on reimbursing Medicare premiums using HSA funds, you want the older spouse to have at least enough funds in their own HSA to pay for their own Medicare premiums until the younger spouse reaches Medicare age.
Iconicus
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Re: HSA Contribution - 2021

Post by Iconicus »

Mike Scott wrote: Sat Nov 21, 2020 1:14 pm As far as I know, you have it. As long as the second $1000 catchup is in a separate account I don't think it matters which one unless there is something about employer contributions or investment options available or something else that complicates your choice. We are maxing the family contribution plus one catchup from my wife's pay check and I add $1000 directly to my own HSA.
$1000 each?!!!
I contribute $7100 (since I'm 55) to my HSA through my health plan at work and my employer contributes $1000 to my HSA. My wife (who is >55), who does not work, can open her own HSA and contribute her catchup $1000 to it?
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MP123
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Re: HSA Contribution - 2021

Post by MP123 »

Iconicus wrote: Sat Nov 21, 2020 9:47 pm
Mike Scott wrote: Sat Nov 21, 2020 1:14 pm As far as I know, you have it. As long as the second $1000 catchup is in a separate account I don't think it matters which one unless there is something about employer contributions or investment options available or something else that complicates your choice. We are maxing the family contribution plus one catchup from my wife's pay check and I add $1000 directly to my own HSA.
$1000 each?!!!
I contribute $7100 (since I'm 55) to my HSA through my health plan at work and my employer contributes $1000 to my HSA. My wife (who is >55), who does not work, can open her own HSA and contribute her catchup $1000 to it?
Yes, there are no income requirements for an HSA. Her catchup does need to go into her account. The non-catchup contribution can be split any way you'd like.

Assuming, of course, that she's an eligible individual otherwise.
terran
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Re: HSA Contribution - 2021

Post by terran »

If your HSA is payroll deducted there might be a FICA tax advantage to contributing as much as possible to your HSA, and only the catchup to your wife's.
DIYtrixie
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Re: HSA Contribution - 2021

Post by DIYtrixie »

For those years when the older spouse starts Medicare but the younger is still <65 and on an HSA-eligible plan, is it correct that the max contribution for the younger spouse is reduced to single+$1k catchup (versus family+$1k catchup)?
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MP123
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Re: HSA Contribution - 2021

Post by MP123 »

DIYtrixie wrote: Sun Nov 22, 2020 8:22 am For those years when the older spouse starts Medicare but the younger is still <65 and on an HSA-eligible plan, is it correct that the max contribution for the younger spouse is reduced to single+$1k catchup (versus family+$1k catchup)?
Yes, the younger spouse would still be an eligible individual and could make a single contribution plus their catchup.

In theory they could continue to insure the older spouse (also on Medicare) on the family plan. The older spouse wouldn't be eligible to contribute because of Medicare, but the younger spouse could make a family contribution because he or she was covered by a family policy. This might not make financial sense for them but does illustrate the complexity of the situation.
Spirit Rider
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Re: HSA Contribution - 2021

Post by Spirit Rider »

cas wrote: Sat Nov 21, 2020 8:50 pm So, assuming you were planning on reimbursing Medicare premiums using HSA funds, you want the older spouse to have at least enough funds in their own HSA to pay for their own Medicare premiums until the younger spouse reaches Medicare age.
It is not just Medicare premiums that become qualified medical expenses once the HSA account owner turns 65. It is any healthcare insurance premiums of themselves, a spouse or dependent.

The most obvious is that if you continue working after age 65 and remain on your employer's plan. Your employee share of the premiums are a qualified medical expense. As corrected by @tfb

What is less obvious is that if you have a younger spouse when you turn age 65. Any health insurance premium covering them is an HSA qualified medical expense.
Last edited by Spirit Rider on Sun Nov 22, 2020 7:23 pm, edited 1 time in total.
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FiveK
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Re: HSA Contribution - 2021

Post by FiveK »

Spirit Rider wrote: Sun Nov 22, 2020 12:45 pm It is not just Medicare premiums that become qualified medical expenses once the HSA account owner turns 65. It is any healthcare insurance premiums of themselves, a spouse or dependent.
Except premiums for a Medicare supplemental policy, such as Medigap (p. 10 of https://www.irs.gov/pub/irs-pdf/p969.pdf).
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Re: HSA Contribution - 2021

Post by Spirit Rider »

FiveK wrote: Sun Nov 22, 2020 1:28 pm Except premiums for a Medicare supplemental policy, such as Medigap (p. 10 of https://www.irs.gov/pub/irs-pdf/p969.pdf.
@FiveK is correct.

In my impatience to point out that it is age 65 that is the trigger and not just Medicare that is eligible to be considered a qualified medical expense. I neglected to point out that Medigap premiums are not included.
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Re: HSA Contribution - 2021

Post by tfb »

Spirit Rider wrote: Sun Nov 22, 2020 12:45 pm The most obvious is that if you continue working after age 65 and remain on your employer's plan. Your employee share of the premiums are a qualified medical expense.
Aren't those typically pre-tax payroll deductions under a section 125 plan and not reimbursable again by the HSA?
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Spirit Rider
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Re: HSA Contribution - 2021

Post by Spirit Rider »

tfb wrote: Sun Nov 22, 2020 3:25 pm
Spirit Rider wrote: Sun Nov 22, 2020 12:45 pm The most obvious is that if you continue working after age 65 and remain on your employer's plan. Your employee share of the premiums are a qualified medical expense.
Aren't those typically pre-tax payroll deductions under a section 125 plan and not reimbursable again by the HSA?
Good point, my mistake.

Any such premiums not paid with pre-tax funds or not otherwise deducted would be HSA qualified medical expenses.
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Re: HSA Contribution - 2021

Post by ChrisC »

Spirit Rider wrote: Sun Nov 22, 2020 7:12 pm
tfb wrote: Sun Nov 22, 2020 3:25 pm
Spirit Rider wrote: Sun Nov 22, 2020 12:45 pm The most obvious is that if you continue working after age 65 and remain on your employer's plan. Your employee share of the premiums are a qualified medical expense.
Aren't those typically pre-tax payroll deductions under a section 125 plan and not reimbursable again by the HSA?
Good point, my mistake.

Any such premiums not paid with pre-tax funds or not otherwise deducted would be HSA qualified medical expenses.
Retiree health insurance, such as FEHB coverage for Federal retirees, is paid with after-tax dollars taken from your annuity/pension. Ever since I turned 65, I kept a record of the annual paid premium amounts taken from my annuity for HSA reimbursement. My wife turned 65 two years before I did, and I thought of seeking reimbursement of an allocable portion of my insurance premium attributable to her coverage under my insurance — decided that was too aggressive; besides I’m sure I’ll exhaust my HSA without taking aggressive reimbursement positions.
Spirit Rider
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Re: HSA Contribution - 2021

Post by Spirit Rider »

Actually, I retract my correction.

My statements are usually based on the tax code, IRS regulations , guidance or publications. The employee share of employer sponsored health insurance including retirees is explicitly allowed in IRS Notice 2004-2 Q&A 27

Q-27. Are health insurance premiums qualified medical expenses?
A-27. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition, for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses.
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Re: HSA Contribution - 2021

Post by tfb »

Spirit Rider wrote: Sun Nov 22, 2020 9:49 pm Actually, I retract my correction.

My statements are usually based on the tax code, IRS regulations , guidance or publications. The employee share of employer sponsored health insurance including retirees is explicitly allowed in IRS Notice 2004-2 Q&A 27

Q-27. Are health insurance premiums qualified medical expenses?
A-27. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition, for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses.
When the employer-sponsored health insurance is provided under a section 125 plan, is the employee share of premiums zero? Benefits under a section 125 plan, for example HSA contributions through payroll, are considered to be paid by the employer.
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Spirit Rider
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Re: HSA Contribution - 2021

Post by Spirit Rider »

tfb wrote: Sun Nov 22, 2020 10:10 pm When the employer-sponsored health insurance is provided under a section 125 plan, is the employee share of premiums zero? Benefits under a section 125 plan, for example HSA contributions through payroll, are considered to be paid by the employer.
A reasonable question.

HSA and 401k employee contributions are considered employer contributions of respective salary reductions. However, this reference is made to an employee share of insurance premiums that is most often pre-tax. Why would they explicitly mention this in this context if they weren't referring to the vast minority case.

I'm sympathetic to your position on pre-tax premiums, but this notice constitutes "substantial authority" that can be relied upon. Not to mention, it has been out there for > 15 years.
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Re: HSA Contribution - 2021

Post by tfb »

Spirit Rider wrote: Sun Nov 22, 2020 11:06 pm HSA and 401k employee contributions are considered employer contributions of respective salary reductions. However, this reference is made to an employee share of insurance premiums that is most often pre-tax. Why would they explicitly mention this in this context if they weren't referring to the vast minority case.
Because they don't assume that every employer adopts a section 125 plan? By default employees pay a share of the premium with after-tax money. To the IRS, having a section 125 plan is a special case. The employer has to do something to get there. If they were referring to the employee share within the section 125 plan, I would think they have to specifically call that out.
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