HD medical plan but no HSA?

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Leeraar
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HD medical plan but no HSA?

Post by Leeraar » Fri Sep 04, 2015 1:23 pm

So, here's the story. I am retired from a megacorp (General Motors) and am approaching age 65. We (me, wife 2.3 years younger, and student son) have been covered by a high-deductible health insurance plan and have a pretty good BoA HSA where the expenses are paid by GM.

At the end of the year, I will turn 65, and GM will throw me off the boat and I have to get Medicare. Understood.

But, the GM HD coverage will continue for my wife and son. GM tells me I will no longer be able to contribute to the HSA they sponsor.

Question:
Are we allowed to open an HSA on our own? Does an HSA have to be sponsored or associated with your health insurance provider?

Thank you,

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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FiveK
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Re: HD medical plan but no HSA?

Post by FiveK » Fri Sep 04, 2015 1:47 pm

Leeraar wrote:Are we allowed to open an HSA on our own? Does an HSA have to be sponsored or associated with your health insurance provider?
A1. Yes - actually, your wife may open one on her own.
A2. No.

See the last example at https://www.hsaresources.com/pdf/Turning_65.pdf. Seem familiar? Happy HSAing!

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AAA
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Re: HD medical plan but no HSA?

Post by AAA » Fri Sep 04, 2015 2:19 pm

My experience retiring from megacorp and going on Medicare - they stopped covering the $5 a month BofA HSA fee. Gee thanks.

Topic Author
Leeraar
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Re: HD medical plan but no HSA?

Post by Leeraar » Fri Sep 04, 2015 2:20 pm

FiveK wrote:
Leeraar wrote:Are we allowed to open an HSA on our own? Does an HSA have to be sponsored or associated with your health insurance provider?
A1. Yes - actually, your wife may open one on her own.
A2. No.

See the last example at https://www.hsaresources.com/pdf/Turning_65.pdf. Seem familiar? Happy HSAing!
Thank you very much!

I'll call BoA HSA and see what they recommend.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Spirit Rider
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Re: HD medical plan but no HSA?

Post by Spirit Rider » Fri Sep 04, 2015 7:20 pm

You can continue to cover any qualified medical expenses for you, your spouse, and dependents from your HSA. Likewise, once your spouse is making HSA contributions, those can also be used to pay your, your spouse, and your dependents' qualified medical expenses.

Note: There is a strange effect when your children are no longer dependents. Even though your children can remain on the family HDHP until age 26, their qualified expenses are no longer eligible for reimbursement from either of your HSAs when they are no longer dependents. However, they then become eligible to open their own HSA and make the maximum family plan contribution.

Yes, you read that right. When < age 26 children are no longer dependents, your spouse and each adult non-dependent can make their own family plan contribution. One of those peculiarities of the tax code.

Also, your Medicare Part B premium is a qualified medical expense. If you have a marketplace Medicare Supplement (Medigap) policy, those premiums are not qualified medical expenses. However, another one of those tax code gifts, if your MegaCorp has a retiree Medicare Supplement Policy that requires premiums, those premiums are qualified medical expenses.

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Leeraar
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Re: HD medical plan but no HSA?

Post by Leeraar » Fri Sep 04, 2015 7:49 pm

Spirit Rider wrote:You can continue to cover any qualified medical expenses for you, your spouse, and dependents from your HSA. Likewise, once your spouse is making HSA contributions, those can also be used to pay your, your spouse, and your dependents' qualified medical expenses.

Note: There is a strange effect when your children are no longer dependents. Even though your children can remain on the family HDHP until age 26, their qualified expenses are no longer eligible for reimbursement from either of your HSAs when they are no longer dependents. However, they then become eligible to open their own HSA and make the maximum family plan contribution.

Yes, you read that right. When < age 26 children are no longer dependents, your spouse and each adult non-dependent can make their own family plan contribution. One of those peculiarities of the tax code.

Also, your Medicare Part B premium is a qualified medical expense. If you have a marketplace Medicare Supplement (Medigap) policy, those premiums are not qualified medical expenses. However, another one of those tax code gifts, if your MegaCorp has a retiree Medicare Supplement Policy that requires premiums, those premiums are qualified medical expenses.
Spirit,

Thank you. I will explore these wrinkles.
Even though your children can remain on the family HDHP until age 26
Not true. There was an available exemption for this from ObmbaCare for retiree health care plans, and GM was very aggressive in getting those exemptions. My sons are only covered until age 18, or age 23 if they are full-time students.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Spirit Rider
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Re: HD medical plan but no HSA?

Post by Spirit Rider » Fri Sep 04, 2015 8:49 pm

Yes, I should have added "if your MegaCorp plan allows this". To bad, it is a wonderful loophole for young adults to jump start their HSAs starting out. Even if the "employer contributions" come from mom and dad.

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FiveK
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Re: HD medical plan but no HSA?

Post by FiveK » Fri Sep 04, 2015 9:45 pm

Spirit Rider wrote:However, they then become eligible to open their own HSA and make the maximum family plan contribution.

Yes, you read that right. When < age 26 children are no longer dependents, your spouse and each adult non-dependent can make their own family plan contribution. One of those peculiarities of the tax code.
Spirit Rider, thanks for this heads-up. Do you have a reference for an affirmative statement of the non-dependent child eligibility? Looking through https://www.law.cornell.edu/uscode/text/26/223 (and with you having provided "the answer"), I can see
(2) Monthly limitation
The monthly limitation for any month is 1/12 of—
...
(B) in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, [some number that changes each year].
and
(5) Special rule for married individuals
In the case of individuals who are married to each other, if either spouse has family coverage—
(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))—
(i) shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and
(ii) after such reduction, shall be divided equally between them unless they agree on a different division.
(6) Denial of deduction to dependents
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.
which does seem to allow the non-married individual who is not a dependent to do exactly as you say. Is there something even more definitive? Thanks!

ETA: Ok, still interested in something affirmative from the IRS, but meanwhile I've found
http://www.irs.gov/publications/p969/ar ... 1000204025 - An independent child covered under the family HDHP would fit the criteria)
http://healthequity.com/doclib/hsa_guidebook.pdf - Not the IRS, but seems well researched - see p. 103 where it says
If your adult child up to age 26 is covered by your family HDHP, but does not qualify
as your tax dependent, the adult child can open his own HSA as long as he meets all
other HSA eligibility requirements.
Your adult child does not have to split the maximum contribution limit for a family
with you as you would with your spouse. He or she can contribute up to the full
maximum family limit—$6,650 in 2015 and $6,750 in 2016.
...and I see you have replied with very similar items. I'm a believer - thanks again.
Last edited by FiveK on Sat Sep 05, 2015 12:39 am, edited 1 time in total.

Spirit Rider
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Re: HD medical plan but no HSA?

Post by Spirit Rider » Sat Sep 05, 2015 12:34 am

FiveK wrote:Spirit Rider, thanks for this heads-up. Do you have a reference for an affirmative statement of the non-dependent child eligibility? Thanks!
Like many things involving the tax code you have to do a little inference.

From Publication 969 page 3.

Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements.
You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
You have no other health coverage except what is permitted under Other health coverage, later.
You are not enrolled in Medicare.
You cannot be claimed as a dependent on someone else's 2014 tax return.

So a non-dependent child covered by an HDHP plan fits all the qualifying requirements to be an eligible individual.

From Publication 969 page 5.

Limit on Contributions
The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual For 2015, if you have self-only HDHP coverage, you can contribute up to 3,350. If you have family HDHP coverage, you can contribute up to $6,650.

So as an eligible individual with family HDHP coverage the non-dependent covered child can contribute the family plan maximum, because the Rules for married people do no apply and there is no other provision requiring the non-dependent children's contribution limit to be shared with the parent's limit. Clearly this loophole was a legislative drafting oversight, but congress has had a dozen years to correct this and they have not.

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FiveK
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Re: HD medical plan but no HSA?

Post by FiveK » Sat Sep 05, 2015 12:42 am

Spirit Rider wrote: Like many things involving the tax code you have to do a little inference.
Yes - see edit in my previous post made while you replied here. Once again...thanks!

Tonyrf
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Re: HD medical plan - HSA contribution rights for covered non-dependent child

Post by Tonyrf » Mon Jan 08, 2018 4:44 pm

Spirit Rider: Thank you for your explanation of the rights of a non-dependent 19-26 year old that is covered under a Family HDHP. I see the analysis above in this comment thread (as well as within other comment threads for Bogleheads, including one comment which I believe you authored in early December of 2017). Your analysis is incredibly helpful.

But... all of the comments that I have seen were prepared before Congress passed the new tax law in December of 2017. Does the analysis still hold true after giving effect to the new tax law.

The key conclusions from your analysis that I am trying to confirm are as follows:
* As of January 1, 2018, my wife and I are covered under an HDHP. We thus each can establish an HSA and we can contribute for 2018 (in the aggregate) up to the cap on full family contributions to HSA's [since we both are age 59, in our case this amounts to a cap of $8,900 in contributions in 2018];
* We can include my non-dependent 22 year old son (he works and pays his own bills) as a covered individual under the HDHP [strictly speaking, this conclusion is a function of my insurance policy, rather than of the law applicable to HDHP's and HSA's], and the fact that we are covering our son through our HDHP does not adversely affect our ability to contribute to our HSA's;
* Since my son is covered under our HDHP, so long as he is not covered under other medical insurance (i.e., so long as he declines coverage at his work and does not otherwise procure coverage), he can establish an HSA and he can contribute for 2018 up to the cap on full family contributions ($6,900). Since I expect that he will continue to work for the next few years through age 26, under current law he also will be able to make such contributions for each tax year through age 26 (pro-rating the year when he reaches age 26).

This is an incredible tax benefit availed by the Obama care requirement that insurers provide coverage for children through age 26. I would think that anyone who has the resources to fund the full contributions (i.e., in our case, $8,900 at the parental level and $6,900 at the child level) should do so, even if the parent has to provide the funds at both levels (e.g., if the child lacks the resources). The fact that the parent provides the funds should not undermine the conclusions, since the $6,900 is well below the annual cap on gifts.

It would be wonderfully helpful if you could confirm that these conclusions continue to apply. Thank you.

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FiveK
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Re: HD medical plan - HSA contribution rights for covered non-dependent child

Post by FiveK » Mon Jan 08, 2018 8:03 pm

Tonyrf wrote:
Mon Jan 08, 2018 4:44 pm
It would be wonderfully helpful if you could confirm that these conclusions continue to apply. Thank you.
Not Spirit Rider here, but as a very interested user of this option, we (more accurately, our daughter) will continue to use this in 2018.

One may do one's own due diligence by searching Text - H.R.1 for "223" (as in 26 U.S. Code § 223 - Health savings accounts). There are only a couple of mentions, neither of which affect the non-dependent under 26 year old.

Tonyrf
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Re: HD medical plan - HSA contribution rights for covered non-dependent child

Post by Tonyrf » Wed Jan 10, 2018 11:33 am

Thank you

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