starting HDHP and HSA mid-year

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Incendiary
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starting HDHP and HSA mid-year

Post by Incendiary » Fri Feb 08, 2019 12:41 pm

We get health care through my spouse right now. She has a comprehensive plan through her current employer, but will be starting a new job later this year (Sept? Oct?). At that time, we plan to switch to an HDHP so that we will qualify for an HSA. Will we be able to contribute the full amount to the HSA even though we will only be in the HDHP for part of the year? Or will we have to prorate? Start in 2020?

Thanks in advance! :sharebeer

cas
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Re: starting HDHP and HSA mid-year

Post by cas » Fri Feb 08, 2019 1:04 pm

It is a bit tricky. Probably the safest thing is just to direct you to google "IRS Publication 969" and suggest you read the (sequential) sections on "Last Month Rule", "Testing Period," and Examples 1 and 2.

DarkHelmetII
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Re: starting HDHP and HSA mid-year

Post by DarkHelmetII » Fri Feb 08, 2019 1:05 pm

Last I checked, which was several years ago, depends on how you end the year:

1) If you have an HSA compliant plan by 12/1/19 and are enrolled in an HSA compliant plan for 2020, you can contribute 100% amount for the 2019 tax year even if you had a non-HSA compliant for the majority of 2019.

2) If you do not have an HSA compliant plan on 12/31/19, then your tax year 2019 contributions are limited to the pro-rata portion of time for which you had an HSA compliant plan.

Here is a more formal description: https://www.benstrat.com/downloads/HSA- ... bility.pdf. This is NOT an IRS or otherwise government source but nonetheless probably more credible than my years old memory.

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ChowYunPhat
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Re: starting HDHP and HSA mid-year

Post by ChowYunPhat » Fri Feb 08, 2019 1:06 pm

Should not be a problem. I switched employers in May of 2017 and went from a PPO to HDHP plan at a new employer. As this was considered a life event I could enroll in the HDHP and participate in the HSA including the full company match and IRS max despite joining mid-year. Fidelity managed the HSA....has been a positive experience thus far.

Good luck Incendiary.
A wise man and his money are friends forever...

jwasilko
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Re: starting HDHP and HSA mid-year

Post by jwasilko » Fri Feb 08, 2019 1:13 pm

Incendiary wrote:
Fri Feb 08, 2019 12:41 pm
We get health care through my spouse right now. She has a comprehensive plan through her current employer, but will be starting a new job later this year (Sept? Oct?). At that time, we plan to switch to an HDHP so that we will qualify for an HSA. Will we be able to contribute the full amount to the HSA even though we will only be in the HDHP for part of the year? Or will we have to prorate? Start in 2020?

Thanks in advance! :sharebeer
One thing to be aware of is that your HDHP deductible might not be pro-rated for 2019. Depending on your risk sensitivity you might want to use a regular plan when you join in 2019 and then switch to a HDHP/HSA in 2020 during open enrollment.

Topic Author
Incendiary
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Re: starting HDHP and HSA mid-year

Post by Incendiary » Sat Feb 09, 2019 12:12 am

Thanks for the advice, everyone. Will check out the links, too.

DarkHelmetII
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Re: starting HDHP and HSA mid-year

Post by DarkHelmetII » Sat Feb 09, 2019 6:31 am

ChowYunPhat wrote:
Fri Feb 08, 2019 1:06 pm
Should not be a problem. I switched employers in May of 2017 and went from a PPO to HDHP plan at a new employer. As this was considered a life event I could enroll in the HDHP and participate in the HSA including the full company match and IRS max despite joining mid-year. Fidelity managed the HSA....has been a positive experience thus far.

Good luck Incendiary.
While not necessarily specific to OP's particular situation, I will suggest that there is a difference between what an Employer and / or HSA administrator will let you do and what the IRS tax code says. Just because one had a qualifying life event, that does not necessarily mean you can then automatically fund the HSA 100%. For example if you switch plans from non-HDHP to HDHP on Dec 15, that is of course past Dec 1 and as such IRS rules say you cannot fund the HSA 100% (presumably only pro-rata at best for 2 of 52 weeks in the year). But any HSA administrator will be glad to take your money ... there is no real-time check between the HSA administrator to ensure that your health insurance indeed is compliant; but rather the end game in my opinion is an IRS audit in which one would have to demonstrate having had the requisite HDHP plan corresponding to the contributions made.

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Nate79
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Re: starting HDHP and HSA mid-year

Post by Nate79 » Sat Feb 09, 2019 8:39 am

You can always open an HSA with someone like Fidelity and fund it regardless what your employer will allow.

One note is if you had an FSA with your previous insurance that complicates things.

Topic Author
Incendiary
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Re: starting HDHP and HSA mid-year

Post by Incendiary » Sat Feb 09, 2019 10:27 pm

Nate79 wrote:
Sat Feb 09, 2019 8:39 am
You can always open an HSA with someone like Fidelity and fund it regardless what your employer will allow.

One note is if you had an FSA with your previous insurance that complicates things.
How so? Can you not have both?

Ostentatious
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Re: starting HDHP and HSA mid-year

Post by Ostentatious » Sat Feb 09, 2019 11:22 pm

You can’t have both unless it is a special purpose FSA.

TropikThunder
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Re: starting HDHP and HSA mid-year

Post by TropikThunder » Sun Feb 10, 2019 3:49 am

Ostentatious wrote:
Sat Feb 09, 2019 11:22 pm
You can’t have both unless it is a special purpose FSA.
To expand a bit, you can’t have an HSA if you have any other health coverage (including Medicare, non-HDHP coverage through a spouse, Tricare, etc). A general purpose FSA can be used for health care while a limited-purpose FSA can only be used for dental and vision. So, one can have an HSA + a limited purpose FSA but not a general purpose FSA.

Topic Author
Incendiary
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Re: starting HDHP and HSA mid-year

Post by Incendiary » Sun Feb 10, 2019 6:56 am

Great to know. Thanks!

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