HSA contribution rules for married couples, one over age 55

[simple girl]

Hello all.

Both DH and I officially retired 12/31/2019 (Woo-hoo!). We signed up for an ACA policy that is HSA compliant (BlueOptions Bronze (HSA) 1705).

The policy is in my name. I would like to fund the HSA now. We already have an HSA in DH's name, as before retiring we had an HSA policy through his employer.

I'm probably going to open a new HSA account with a different provider (our current one is with HSA Administrators, and the fees are high).

Questions:

1. If we do open a new account, say, with Fidelity, does it need to be in my name since the HSA insurance is in my name? If so, can we still do the extra $1K catchup contribution for DH since he is over 55?

2. If we want to eventually transfer our HSA policy from HSA admin to Fidelity, would it make more sense to open the Fidelity policy in DH's name? Can we open it in his name even though the HSA insurance is under my name?

3. Are there any other options I should be considering? Should we each have a separate HSA? Does that somehow help with both us being eligible for the extra $1K contribution once I turn 55? I think I recall someone doing that on here...?

Thanks for any help!

 

[HenryD]

1. If we do open a new account, say, with Fidelity, does it need to be in my name since the HSA insurance is in my name?

You can have an HSA if you are covered by a compliant policy, whether you are the primary or not. So, it doesn't need to be in your name.

If so, can we still do the extra $1K catchup contribution for DH since he is over 55?

Only to an HSA owned by DH.

2. If we want to eventually transfer our HSA policy from HSA admin to Fidelity, would it make more sense to open the Fidelity policy in DH's name?

You cannot, as I understand it under normal circumstances, roll money from an HSA owned by one person, to another person. DW and me each have an HSA. This is the most flexible.

Can we open it in his name even though the HSA insurance is under my name?

Yes.

3. Are there any other options I should be considering? Should we each have a separate HSA?

Thats the most flexible approach. The year I turn 55 we will max DWs HSA contribution, but since she will be under 55 we will put my extra $1K in my otherwise dormant HSA.

Does that somehow help with both us being eligible for the extra $1K contribution once I turn 55? I think I recall someone doing that on here...?

The $1K catchup eligibility is based on the age of the account owner, and there are no joint accounts. So each having an account is the most flexible.

 

[cathy63]

For 2020, you can open an HSA account in your DH's name at Fidelity and fund it with $8100. It doesn't matter how the insurance policy is held, and Fidelity does not require any proof that he's on your policy.

After you've established the new account, then you can work on rolling over his existing HSA into his new Fidelity account. I think it's best to get this year's contribution done before you mess with the rollover. Sometimes rollovers take a few weeks, and the holidays are coming up. It's just easier to deal with this year's first.

In the year that you turn 55, you will need to establish your own HSA in order to make the $1000 catch-up contribution for yourself. You can divide up the family contribution between multiple accounts any way you like, but the $1000 catch-up can only go into the account of an individual who is 55 or older.

 

[audreyh1]

Also, Medicare premiums can only be paid from the HSA account where the owner is 65 or older, they can pay for themselves and/or for a spouse. in other words - a younger spouse can’t pay for Medicare premiums for their spouse from an HSA until they themselves turn 65. So in your HSA funding decisions you might want to consider that if paying Medicare premiums is a goal.

 

[simple girl]

Thank you all very much for your helpful replies!

I am going to open an HSA in DH's name (probably at Fidelity), and we will fund it with the $8100 contribution (for 2020 tax year).

I will then work on the transfer of our current HSA (in his name already) to the new HSA. I understand that can take some time.

Then when I turn 55 I will open an HSA account in my name for any catch-up contributions for me.

Thanks again!!!

 

[Ole Red 29]

Guys, I am retired, 59-1/2 yrs old and thought since I was no longer receiving a paycheck, I COULD NOT FUND AN HSA. Given these circumstances, where from can I fund an HSA? From IRA? I do receive a payment from my former employer each year from a deferred compensation account. It shows up on a W2. Could I somehow use that? If I can find a way to fund an HSA with pretax dollars, I will follow the advice given above about opening a new account at Fidelity and eventually transferring my existing HSA from my former employer.

A quick question from the advice given above. When my DW turns 55, I can open her a separate account and deposit an additional $1000 (make up) payment into hers? That would mean it would be a total of $9100 contribution (in 2020) for our family?

thanks

I don't mean to derail this thread, but I searched history and found it. It seems like maybe it has already ran it course.

 

[audreyh1]

You don’t have to have earned income (paycheck) to fund an HSA. You have to be under 65 (not Medicare eligible) and have a health plan that is HSA eligible.

You simply need to open a new HSA account independently from your former employer, and fund with post-tax dollars. Then you get to use the full HSA deduction when you file your taxes, so you won’t owe taxes on those HSA contributions.

 

[Ole Red 29]

You don’t have to have earned income (paycheck) to fund an HSA. You have to be under 65 (not Medicare eligible) and have a health plan that is HSA eligible.

You simply need to open a new HSA account independently from your former employer, and fund with post-tax dollars. Then you get to use the full HSA deduction when you file your taxes, so you won’t owe taxes on those HSA contributions.

I'm sorry, but this confuses me. I thought the whole benefit of the HSA was to pay medical bills with pre-tax dollars. If I fund with post-tax dollars, is the only benefit tax free interest on the account? thanks,

 

[pb4uski]

No, you get a tax deduction for HSA contributions so it would offset other taxable income that you have, effectively making that income tax-free.

The tax deduction is not part of itemized deductions so you get it whether you itemize or take the standard deduction.

 

[audreyh1]

I'm sorry, but this confuses me. I thought the whole benefit of the HSA was to pay medical bills with pre-tax dollars. If I fund with post-tax dollars, is the only benefit tax free interest on the account? thanks,

No. You are getting any tax you would have owed back when you file your return. Just like with an IRA contribution.

So you do end up paying for medical expenses with pre-tax dollars.

I think you might be getting hung up on the “post-tax” dollars concept. You fund with whatever money you have, then you don’t pay income tax on that same amount from your taxable income. It doesn’t really matter where the money came from. What matters is that you get to deduct the amount contributed to an HSA each year from your taxable income that same year.

 

[Ole Red 29]

thanks for the replies. this is slowly starting to sink in. If, for 2020, I was around $326k (top of 24% tax bracket) for net income (mainly Roth conversion), then now, before April 15th I can open and fund an HSA at Fidelity with $8100 (married) of post tax cash for 2020. This would reduce the 2020 net income by that same amount, saving me $1944 (24% tax on $8100) for my 2020 taxes and fund my new HSA for future medical bills.

And then do the same for 2021.

Is that all correct? thanks again.

 

[cathy63]

thanks for the replies. this is slowly starting to sink in. If, for 2020, I was around $326k (top of 24% tax bracket) for net income (mainly Roth conversion), then now, before April 15th I can open and fund an HSA at Fidelity with $8100 (married) of post tax cash for 2020. This would reduce the 2020 net income by that same amount, saving me $1944 (24% tax on $8100) for my 2020 taxes and fund my new HSA for future medical bills.

And then do the same for 2021.

Is that all correct? thanks again.

Yes, if you and your spouse were both on High Deductible Health Insurance Plans for all of 2020, you can put $8100 in an HSA between now and April 15th, and that will reduce your 2020 tax owed by 24% x $8100. If your spouse is also over 55, then you can put $1000 in a second HSA account and reduce your 2020 taxes even further.

 

[Ole Red 29]

Love this board and all the expert help. I had forgot about my DW being able to have a make up payment. She turns 55 this year. So for 2021, I will be able to fund my HSA with $8,200 and we can open a new HSA in her name and contribute an additional $1,000, correct? At the 24% marginal tax rate, that is ~$2200 in tax savings. I assume that results in two separate HSA debit cards from Fidelity? thanks again.