HSA max ok after leaving job?

[tmitchell]

I’m leaving my job and am planning on signing up for ACA beginning November. I’ve searched but cannot find an answer to this question:

Am I eligible to deposit the entire yearly max to an HSA coming off employers insurance in Q4, ie $3600?

My idea would be to take advantage of some tax savings this year and start stocking the coffers for future use. I won’t be eligible for any ACA discounts due to my income this year so it seems like a good way to go as I bridge into RE. Just not sure if that’s allowed.

For the record I am 54 and in good health. Thanks!

 

[erkevin]

I see three possible scenarios here: 1.) Your current employee insurance is a HDHP and your ACA insurance will also be a HDHP. If it is, then yes, you can contribute the max. 2.) If your current employee's insurance is a HDHP, but your ACA will not be a HDHP, then you would have to pro-rate your contribution for 10 months, so you get 10/12 of the max yearly contribution. 3.) Your current employee insurance is not HDHP, but your ACA insurance will be HDHP, you have two options; pro-rate the contribution for the two months (2/12) or use the last-month rule and contribute 100% of the max, BUT you have to have an HDHP for the following 12 months.

 

[Aerides]

I won’t be eligible for any ACA discounts due to my income this year so it seems like a good way to go as I bridge into RE.

You might be, your 2021 income is not a determination for your 2022 ACA cost. You'll be asked to provide your 2022 income estimate for the purposes of your 2022 plan.

I always loaded my HSA to full at the start of the calendar year, and there was no tax issue with that when I retired mid-year, but I also went COBRA at the start and then went on the ACA clean at the beginning of a calendar year. We have kept HSA/HD plans on the ACA ever since and continue to fully load our HSAs each year so far.

For a month and change, COBRA might be something you want to look at, even if it is a higher premium just for one less hassle and change at the same time.

 

[Out-to-Lunch]

What erkevin said. But, for more detail, you will want to look at IRS form 8889 and its instructions.

 

[bingybear]

did your employer insurance have an HRA?

this would effect?

 

[tmitchell]

Thanks all. I don’t have a HDHP through my employer, so sounds like I’d better just deal with a new plan next year.

COBRA is expensive!

 

[always_learning]

I’m leaving my job and am planning on signing up for ACA beginning November. I’ve searched but cannot find an answer to this question:

Am I eligible to deposit the entire yearly max to an HSA coming off employers insurance in Q4, ie $3600?

My idea would be to take advantage of some tax savings this year and start stocking the coffers for future use. I won’t be eligible for any ACA discounts due to my income this year so it seems like a good way to go as I bridge into RE. Just not sure if that’s allowed.

For the record I am 54 and in good health. Thanks!

I am nowhere near an expert, so please just use my post as a jumping off for your own research, but there is something called "the last month rule" that says you can contribute a full year if you are covered by a HDHP on the first day of the last month and it's all good and well but you also have to remain covered for the entire next year. I nave no more knowledge than that, though.

The following is copied from the IRS (in the link, scroll down until the menu on the left shows "contributions" and the sub category of "Last Month Rule ")

https://www.irs.gov/publications/p969#en_US_2020_publink1000204049

Last-month rule.
Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month if you didn’t otherwise have coverage.

Testing period.
If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2020, through December 31, 2021).
If you fail to remain an eligible individual during the testing period, for reasons other than death or becoming disabled, you will have to include in income the total contributions made to your HSA that wouldn’t have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are calculated on Form 8889, Part III.