HSA Contribution question

[noelm]

Hello folks,

My HSA-type health insurance kicked in on 1st Nov 2012. I opened HSA with local credit union in mid-Dec. 2012. At the time of account opening, I was allowed to transfer $1000 to that account as it was for last 2 months of the year, my insurance was HSA-type (At the same time, some other bank with only online presence told me that I can not contribute a single dime because 1st of the last month of the year has passed). The guys at the banks were not much aware of these accounts so it was little difficult to discuss anything. Their standard answer was, ask your tax consultant.

I tried to transfer $2000 yesterday and I was told that I can transfer only $1400 or something. I know that maximum contribution for a family is $6450/year. So why is this limit? The lady on the phone could not answer this question, that what the system showed her.

Can anyone flash some light? Is there any IRS rule that you can not contribute more than amount X/month to HSA?

Thanks in advance.

 

[MichaelB]

It sounds like they are applying the "last month" rule to you, even though it looks like it does not apply in your case. There might also be some confusion about the contribution year, because the HSA is like an IRA - you can take last year's contribution through 4/15 of this year. This may help https://www.hsaresources.com/pdf/Testing_Period_Worksheet.pdf

 

[JoeWras]

That's strange. The IRS publication goes into great detail about how to determine your yearly limit, especially if you are only covered part year or even change from single to family plan mid-year:

http://www.irs.gov/pub/irs-pdf/p969.pdf (start end of page 4)

But it doesn't say anything about "lumpy" contributions. One would assume they are OK as long as at the end of the year, you pass all the tests for the max amount you are allowed. Even then, you can remove contributions before it is too late (filing deadline).

Does your employer also contribute? Doubt this would factor in, but just a guess.

My HSA bank doesn't care if I overcontribute. It is my problem.

 

[frayne]

Also if you do contribute more than the limit during the year, as long as you take out the excess before April 15th there is no penalty. At least that is my understanding.

 

[JoeWras]

It sounds like they are applying the "last month" rule to you, even though it looks like it does not apply in your case. There might also be some confusion about the contribution year, because the HSA is like an IRA - you can take last year's contribution through 4/15 of this year. This may help https://www.hsaresources.com/pdf/Testing_Period_Worksheet.pdf

Ah, perhaps. Do they think neolm is contributing for 2011? That's possible.

 

[pb4uski]

Also if you do contribute more than the limit during the year, as long as you take out the excess before April 15th there is no penalty. At least that is my understanding.

This brings up a question that I am pondering of whether there is any substantial benefit to doing my entire 2013 HSA contribution now presuming that I will continue to have HSA-eligible HDHI coverage throughout 2013 rather than making my contribution later in 2013.

Assuming that the money to fund the contribution is coming out of taxable equity investments and going into similar equity investments in the tax-free HSA the only advantage that I can see is that the 2013 income on the contribution would be tax free (but it is on my taxable accounts too assuming that my qualified dividend/capital gains tax rate is 0%).

So it seems it doesn't matter much if I fund it now or later in 2013. Am I missing anything?

 

[MichaelB]

The coverage was effective Nov 1, 2012, so noelm is eligible to contribute to an HSA account in 2012. Assuming it is family coverage, he can contribute $6250 in 2012. He chose to contribute only $1000, which is the prorated amount equivalent to two months of eligibility. He should be able to contribute a full year in 2013, $6450, with no restrictions.

The financial institution is not at risk if one makes an excess contribution. Because many people are still making their 2012 contributions that might be their confusion. They may have an internal rule about monthly contribution limits. The risk of over contribution is real, because the policyholder much have an eligible policy on Nov 1 of this year or be subject to a fine.

So it seems it doesn't matter much if I fund it now or later in 2013. Am I missing anything?

Just saw that. The only issue is Nov 1 coverage and potential fine.