Managing HSA limits

[The Cosmic Avenger]

Last year was our first year with an HSA, and we started exactly mid-year, July 1, so we didn't have to worry about the limit. This year we're trying to max out our contribution, and I was surprised to discover that, unlike 401(k)s, the employer contribution DOES count towards the limit.

So how have you handled this? Do you overcontribute and deal with the additional income tax later? Do you make an additional one-time contribution right at the end of the year? (I'm not sure that those will be pre-tax, though, and part of the point for me is maximizing our pre-tax deductions.)

And, just to complicate things, our HI plan has Rally Rewards, and if you do things like do a cost comparison or watch videos on health issues, you can get additional contributions to your HSA. I didn't even account for that when I planned our HSA contributions...although I did at least know to account for the employer contribution!

Anything I haven't thought of that you had wish you knew when you first started your HSA?

We're planning on not spending the funds even for our Medicare bridge years if we can help it, as we should be able to pay OOP, and then we have a nice pad against any emergency care or anything like that.

We will be saving all receipts, as I do realize we will need them to access the money later.

 

[audreyh1]

You have until April 15 of the following year to make your contribution, so you have plenty of time to bring it up to the exact max if you really don’t know ahead of time what your employer will contribute.

Any additional contributions on your part is deducted from your income before the taxable AGI is calculated. Because that contribution money is not taxed, it becomes pre-tax for Federal income tax.

 

[The Cosmic Avenger]

You have until April 15 of the following year to make your contribution, so you have plenty of time to bring it up to the exact max if you really don’t know ahead of time what your employer will contribute.

Any additional contributions on your part is deducted from your income before the taxable AGI is calculated. Because that contribution money is not taxed, it becomes pre-tax for Federal income tax.

I guess I'm trying to KISS, so I'm trying to keep all of the contributions as payroll deductions, rather than having to deduct the amount on our tax returns. I know that in the end there's no difference, but the payroll deduction means less work for me. However, I guess for this there is likely going to be some fine-tuning, so thank you for making me face that.

 

[audreyh1]

I see, so you can direct your employer to have your personal HSA contribution made from your paycheck pre-tax? I guess you’ll have to do the best you can for your final Dec paycheck if you can get the one off change made that quickly.

 

[sengsational]

I over contributed once due to inaccurate calculations by me on the megacorp bit. The HSA holder took care of it. It was a pain They had to do some IRS form, if I'm remembering right, and the extra came out. Here I am, adding another partially researched contribution from memory, so hopefully won't be called out as crazy But I like the idea of waiting for the year-end value, and topping up to the max...that seems simple and it's pretty small potatoes on the timing, given it's $9k or so for 2.

 

[The Cosmic Avenger]

@audreyh1, yes, regular deductions/contributions are pre-tax, but I'm not sure about the one-time contributions. This is my spouse's plan, so they're not clear about that either, and their employer is much larger than mine, and so getting that kind of information is much harder than I'm used to.

@sengsational, that is good to know; I'm used to 401(k)s, where our institutions will actually cut off contributions at the limit for you. And from what I've read it's $7,200 this year for a family. There is a regular employer contribution as compensation for the HDHP, but in previous years I've done the Rally Rewards; before we had the HDHP, I actually got cash back on a gift card for completing those "wellness activities". That would actually be preferable, but on my spouse's plan those rewards go to your HSA.

 

[sengsational]

There's the family number, then the added $1,000 each for fogies (catch-up).

If you had one HSA provider, then they would probably cut you off. But I opened my own after I quit and so they (and I) didn't realize there were a few bucks from the employer from my few days employment in January before I quit

 

[The Cosmic Avenger]

There's the family number, then the added $1,000 each for fogies (catch-up).

If you had one HSA provider, then they would probably cut you off. But I opened my own after I quit and so they (and I) didn't realize there were a few bucks from the employer from my few days employment in January before I quit

Another annoying change, the retirement catch up age is 50, but the HSA catch up is at 55! And we just reached the retirement catch up age this year.

 

[O2Bfree]

I over contributed once due to inaccurate calculations by me on the megacorp bit. The HSA holder took care of it. It was a pain They had to do some IRS form, if I'm remembering right, and the extra came out. Here I am, adding another partially researched contribution from memory, so hopefully won't be called out as crazy But I like the idea of waiting for the year-end value, and topping up to the max...that seems simple and it's pretty small potatoes on the timing, given it's $9k or so for 2.

I did this too one year, plus I got married mid-year, which complicated the issue. The way the HSA custodian posted the contributions online was confusing, and I ended up putting in an extra month's worth. But they not only wouldn't withdraw the extra contribution for me, they wouldn't help me verify my calculations for the withdrawal.

I never understood why they couldn't stop your automatic contributions when they reached the limit, like your employer does for 401k contributions. So topping off at the end of the year makes sense.

 

[Out-to-Lunch]

You may wish to familiarize yourself with IRS form 8889: https://www.irs.gov/forms-pubs/about-form-8889

 

[Exit 2024]

We are maxing out HSAs for many years now, usual approach is to contribute as close to the limit as we can through employer payroll deductions and then to top it up with one time contribution before April 15 to the exact contribution limit, usually that payment does not exceed $50. Last year first time ever we over-contributed, spouses first paycheck for 2021 was falling on Friday January 1 and it was paid day before December 31 making it 27th paycheck for 2020, so we filled out form for HSA admin company, and they re-tugged excess contribution as 2021. Not sure what additional tax forms we have to fill out but hope it will not be too complicated.