HSA Contributions

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aburntoutcase
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HSA Contributions

Post by aburntoutcase » Tue Mar 13, 2018 11:05 pm

I am covered by my spouse's employer provided HDHP and would like to make contributions to an HSA in my name. Since I won't be making direct contributions via payroll deduction, will I be losing out on any beneficial tax attributes, or does it not matter? We file jointly and will be subject to AMT.

terran
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Re: HSA Contributions

Post by terran » Tue Mar 13, 2018 11:40 pm

I could be wrong, but I'm fairly sure that only the primary insured can make HSA contributions, so that would be your spouse. [see corrections below - thanks!] Since you're both covered he/she can contribute up to the family max.

Ignoring that, many payroll deducted HSA contributions avoid FICA taxes, which you miss out on if you don't contribute through payroll, but you still get the income tax deduction -- you'll just reduce your income on your tax return instead of it being reduced automatically on the W2 your employer files.
Last edited by terran on Wed Mar 14, 2018 8:14 am, edited 1 time in total.

TropikThunder
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Re: HSA Contributions

Post by TropikThunder » Tue Mar 13, 2018 11:54 pm

aburntoutcase wrote:
Tue Mar 13, 2018 11:05 pm
I am covered by my spouse's employer provided HDHP and would like to make contributions to an HSA in my name. Since I won't be making direct contributions via payroll deduction, will I be losing out on any beneficial tax attributes, or does it not matter? We file jointly and will be subject to AMT.
You'll still be able to claim the deduction for the contribution on your 2018 return, it just won't be sheltered from FICA taxes.

TropikThunder
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Re: HSA Contributions

Post by TropikThunder » Tue Mar 13, 2018 11:57 pm

terran wrote:
Tue Mar 13, 2018 11:40 pm
I could be wrong, but I'm fairly sure that only the primary insured can make HSA contributions, so that would be your spouse. Since you're both covered he/she can contribute up to the family max.
No, each family member covered under the HDHP can open an HSA (spouses that is, not dependent children). The total annual contribution to the two spouses' HSAs can't exceed the family max ($6,850 this year) but they can divide it however they want.

Spirit Rider
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Re: HSA Contributions

Post by Spirit Rider » Wed Mar 14, 2018 12:11 am

terran wrote:
Tue Mar 13, 2018 11:40 pm
I could be wrong, but I'm fairly sure that only the primary insured can make HSA contributions, so that would be your spouse. Since you're both covered he/she can contribute up to the family max.

Ignoring that, many payroll deducted HSA contributions avoid FICA taxes, which you miss out on if you don't contribute through payroll, but you still get the income tax deduction -- you'll just reduce your income on your tax return instead of it being reduced automatically on the W2 your employer files.
Only the primary insured can make HSA contributions by payroll deduction and save FICA taxes. That is normally the preferred method. However, from the 2017 IRS Publication 969, page 6, Rules for married people.

If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2017 is $6,750. You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division.

curmudgeon
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Re: HSA Contributions

Post by curmudgeon » Wed Mar 14, 2018 12:15 am

The one special case that needs two HSA accounts is if you are over age 55(?) and using the additional $1000 "catch up" contribution. For that part you have to have a separate HSA for the spouse. The normal family max (and catch-up for one) can be put in via payroll deduction to a single HSA.

Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.

nolesrule
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Re: HSA Contributions

Post by nolesrule » Wed Mar 14, 2018 7:17 am

curmudgeon wrote:
Wed Mar 14, 2018 12:15 am
Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.
In 2018 the SS Wage base is 128,400.

Even if you are above the SS wage base, you'll still save on medicare taxes at 1.45%, and if your earned income is above $200k ($250k MFJ, you will also reduce the Additional Medicare Tax of 0.9%).

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 8:56 am

nolesrule wrote:
Wed Mar 14, 2018 7:17 am
curmudgeon wrote:
Wed Mar 14, 2018 12:15 am
Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.
In 2018 the SS Wage base is 128,400.

Even if you are above the SS wage base, you'll still save on medicare taxes at 1.45%, and if your earned income is above $200k ($250k MFJ, you will also reduce the Additional Medicare Tax of 0.9%).
We are above SS wage base limit, but yes it appears that my contributions will lose out on the Medicare tax shield of 2.35%.

The coupling to employer seems like an area for benefit reform, not just on HSA but also 401-K. The account belongs to the individual so it seems illogical to insist that payroll contributions be linked to the benefit offered by the employer, but that is a totally separate topic.

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 8:57 am

Also just to be clear AMT will still allow a deduction for HSA contributions even if not done via payroll contributions and that tax benefit is not phased out or restricted by income in any way?

nolesrule
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Re: HSA Contributions

Post by nolesrule » Wed Mar 14, 2018 9:08 am

aburntoutcase wrote:
Wed Mar 14, 2018 8:56 am
nolesrule wrote:
Wed Mar 14, 2018 7:17 am
curmudgeon wrote:
Wed Mar 14, 2018 12:15 am
Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.
In 2018 the SS Wage base is 128,400.

Even if you are above the SS wage base, you'll still save on medicare taxes at 1.45%, and if your earned income is above $200k ($250k MFJ, you will also reduce the Additional Medicare Tax of 0.9%).
We are above SS wage base limit, but yes it appears that my contributions will lose out on the Medicare tax shield of 2.35%.

The coupling to employer seems like an area for benefit reform, not just on HSA but also 401-K. The account belongs to the individual so it seems illogical to insist that payroll contributions be linked to the benefit offered by the employer, but that is a totally separate topic.
The account belongs to the individual, but the individual, spouse and children may all have their medical expenses reimbursed from it. And accounts are inheritable as an HSA between spouses.

Is there a specific reason you want to fund a separate HSA account?

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 9:36 am

nolesrule wrote:
Wed Mar 14, 2018 9:08 am
The account belongs to the individual, but the individual, spouse and children may all have their medical expenses reimbursed from it. And accounts are inheritable as an HSA between spouses.

Is there a specific reason you want to fund a separate HSA account?
My wife's employer only allows them to contribute to an OptumHealth HSA via payroll deduction and that account leaves a bit to be desired in terms of clunky user interface and ease of tracking payments. We have generally not been any where close to maxing out our contributions and I think it makes sense to contribute to another HSA account. Depending on how the stock market does we could consider early retirement in ~10 years and I was thinking that given we will be mid-50s in that time frame it makes sense to have larger HSA balances to cover out of pocket costs while savings on taxes.

Darth Xanadu
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Re: HSA Contributions

Post by Darth Xanadu » Wed Mar 14, 2018 9:37 am

curmudgeon wrote:
Wed Mar 14, 2018 12:15 am
The one special case that needs two HSA accounts is if you are over age 55(?) and using the additional $1000 "catch up" contribution. For that part you have to have a separate HSA for the spouse. The normal family max (and catch-up for one) can be put in via payroll deduction to a single HSA.

Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.
Your first point is a good one. On your second point, I never considered this...so if my wages already exceed the SS earnings cap, I'm not "really" getting the benefit of FICA savings, is that right? Not that it matter to me, I will continue to use HSA but I'm just curious.
My friends said stick to your guns, but instead I just got stuck.

nolesrule
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Re: HSA Contributions

Post by nolesrule » Wed Mar 14, 2018 9:59 am

aburntoutcase wrote:
Wed Mar 14, 2018 9:36 am
nolesrule wrote:
Wed Mar 14, 2018 9:08 am
The account belongs to the individual, but the individual, spouse and children may all have their medical expenses reimbursed from it. And accounts are inheritable as an HSA between spouses.

Is there a specific reason you want to fund a separate HSA account?
My wife's employer only allows them to contribute to an OptumHealth HSA via payroll deduction and that account leaves a bit to be desired in terms of clunky user interface and ease of tracking payments. We have generally not been any where close to maxing out our contributions and I think it makes sense to contribute to another HSA account. Depending on how the stock market does we could consider early retirement in ~10 years and I was thinking that given we will be mid-50s in that time frame it makes sense to have larger HSA balances to cover out of pocket costs while savings on taxes.
If you aren't even maxing out the HSA it doesn't make sense to leave money on the table in the form of paying more medicare taxes. You always have the option of rolling the balance over to another HSA regularly. I would just weigh any fees against the Medicare tax savings.

nolesrule
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Re: HSA Contributions

Post by nolesrule » Wed Mar 14, 2018 10:02 am

Darth Xanadu wrote:
Wed Mar 14, 2018 9:37 am
curmudgeon wrote:
Wed Mar 14, 2018 12:15 am
The one special case that needs two HSA accounts is if you are over age 55(?) and using the additional $1000 "catch up" contribution. For that part you have to have a separate HSA for the spouse. The normal family max (and catch-up for one) can be put in via payroll deduction to a single HSA.

Whether or not you save on payroll taxes may depend on whether (or by how much) the spouse with payroll deductions exceeds the SS limit ($127K), if I remember correctly.
Your first point is a good one. On your second point, I never considered this...so if my wages already exceed the SS earnings cap, I'm not "really" getting the benefit of FICA savings, is that right? Not that it matter to me, I will continue to use HSA but I'm just curious.
You still get the benefit of a reduction in Medicare taxes.

For those close to the SS wage base, if it pushes them below the wage base they get a partial benefit of SS tax reduction. If they are still above the wage base, then there is no SS tax benefit.

nolesrule
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Re: HSA Contributions

Post by nolesrule » Wed Mar 14, 2018 10:03 am

aburntoutcase wrote:
Wed Mar 14, 2018 8:57 am
Also just to be clear AMT will still allow a deduction for HSA contributions even if not done via payroll contributions and that tax benefit is not phased out or restricted by income in any way?
The HSA deduction of non-payroll contributions is an above the line deduction and does not get added back into income for calculating AMT.

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 11:00 am

nolesrule wrote:
Wed Mar 14, 2018 10:03 am
aburntoutcase wrote:
Wed Mar 14, 2018 8:57 am
Also just to be clear AMT will still allow a deduction for HSA contributions even if not done via payroll contributions and that tax benefit is not phased out or restricted by income in any way?
The HSA deduction of non-payroll contributions is an above the line deduction and does not get added back into income for calculating AMT.
That is great, thanks!

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 11:02 am

nolesrule wrote:
Wed Mar 14, 2018 9:59 am
If you aren't even maxing out the HSA it doesn't make sense to leave money on the table in the form of paying more medicare taxes. You always have the option of rolling the balance over to another HSA regularly. I would just weigh any fees against the Medicare tax savings.
Thanks I didn't consider that option and it makes sense. When you say roll over to another HSA regularly, are there no limits to how many times you can roll over in an year?

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 11:13 am

aburntoutcase wrote:
Wed Mar 14, 2018 11:02 am
nolesrule wrote:
Wed Mar 14, 2018 9:59 am
If you aren't even maxing out the HSA it doesn't make sense to leave money on the table in the form of paying more medicare taxes. You always have the option of rolling the balance over to another HSA regularly. I would just weigh any fees against the Medicare tax savings.
Thanks I didn't consider that option and it makes sense. When you say roll over to another HSA regularly, are there no limits to how many times you can roll over in an year?
I just checked and Optum charges a $20 fee to rollover a portion (or entire balance) of the HSA to another provider.

curmudgeon
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Re: HSA Contributions

Post by curmudgeon » Wed Mar 14, 2018 11:29 am

When I first started on an HSA plan, I neglected to max it out, just letting the contribution my employer made stack up, because the investment options didn't look that great. But there was at least a usable S&P500 fund. Later I saw the light, and I've been maxing the HSA ever since, even in early retirement using ACA. The "above the line" deduction, not subject to many of the vagaries of the tax code, is quite nice.

Typically I add up the various out-of-pocket medical/dental expenses once per year and do a reimbursement request. I know some folks have the model that they will keep those requests for years and years, and then use reimbursements for them as a source of cash in retirement.

Spirit Rider
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Re: HSA Contributions

Post by Spirit Rider » Wed Mar 14, 2018 11:50 am

aburntoutcase wrote:
Wed Mar 14, 2018 11:13 am
I just checked and Optum charges a $20 fee to rollover a portion (or entire balance) of the HSA to another provider.
That is the cost to do a direct trustee -> trustee transfer. You can do an unlimited number of those.

You can also do one indirect rollover per 12 month period. You do this by a fee-free withdrawal and rollover the money within 60-days.

Spirit Rider
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Re: HSA Contributions

Post by Spirit Rider » Wed Mar 14, 2018 11:58 am

curmudgeon wrote:
Wed Mar 14, 2018 11:29 am
I know some folks have the model that they will keep those requests for years and years, and then use reimbursements for them as a source of cash in retirement.
While you will get tax-free distributions for later withdrawals of deferred unreimbursed qualified medical expenses. The main reason is to allow that money to grow to help cover the extremely large qualified medical costs you will have in retirement.

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aburntoutcase
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Re: HSA Contributions

Post by aburntoutcase » Wed Mar 14, 2018 2:07 pm

Spirit Rider wrote:
Wed Mar 14, 2018 11:50 am
aburntoutcase wrote:
Wed Mar 14, 2018 11:13 am
I just checked and Optum charges a $20 fee to rollover a portion (or entire balance) of the HSA to another provider.
That is the cost to do a direct trustee -> trustee transfer. You can do an unlimited number of those.

You can also do one indirect rollover per 12 month period. You do this by a fee-free withdrawal and rollover the money within 60-days.
Thanks!

Spirit Rider
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Re: HSA Contributions

Post by Spirit Rider » Wed Mar 14, 2018 3:23 pm

TropikThunder wrote:
Tue Mar 13, 2018 11:57 pm
terran wrote:
Tue Mar 13, 2018 11:40 pm
I could be wrong, but I'm fairly sure that only the primary insured can make HSA contributions, so that would be your spouse. Since you're both covered he/she can contribute up to the family max.
No, each family member covered under the HDHP can open an HSA (spouses that is, not dependent children). The total annual contribution to the two spouses' HSAs can't exceed the family max ($6,850 this year) but they can divide it however they want.
While your statement is the truth, it is not the whole truth.

The ACA created a disconnect between the definition of a dependent for health care coverage of those under 26 and the definition of a dependent for HSAs remaining < 19 or < 24 and attending college.

This has two effects on ACA dependents who are not tax dependents:
  1. Their medical expenses are no longer eligible for reimbursement under their parent's HSAs.
  2. In a giant loophole. They are eligible for their own HSA and can make a full family plan contribution without consideration of their parent's contributions. They are not subject to the limitation under the rules for married people.

TropikThunder
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Re: HSA Contributions

Post by TropikThunder » Wed Mar 14, 2018 6:03 pm

Spirit Rider wrote:
Wed Mar 14, 2018 3:23 pm
TropikThunder wrote:
Tue Mar 13, 2018 11:57 pm
terran wrote:
Tue Mar 13, 2018 11:40 pm
I could be wrong, but I'm fairly sure that only the primary insured can make HSA contributions, so that would be your spouse. Since you're both covered he/she can contribute up to the family max.
No, each family member covered under the HDHP can open an HSA (spouses that is, not dependent children). The total annual contribution to the two spouses' HSAs can't exceed the family max ($6,850 this year) but they can divide it however they want.
While your statement is the truth, it is not the whole truth.
I wasn't under oath. :twisted:

The ACA created a disconnect between the definition of a dependent for health care coverage of those under 26 and the definition of a dependent for HSAs remaining < 19 or < 24 and attending college.

This has two effects on ACA dependents who are not tax dependents:
  1. Their medical expenses are no longer eligible for reimbursement under their parent's HSAs.
  2. In a giant loophole. They are eligible for their own HSA and can make a full family plan contribution without consideration of their parent's contributions. They are not subject to the limitation under the rules for married people.
Yes, that's quite a loophole. I was going off the IRS HSA eligibility guidelines that say in part "you can’t be claimed as a dependent on someone else's tax return". So one could have their 23-year old college student daughter on their family HDHP plan but not be able to claim her as a tax dependent since she makes $10,000 at a part time job, and she could fully fund an HSA to the family max? Nice!

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