HSA contributions made erroneously

Forum|Forum|7 years ago
March 28, 2019
1 reply
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After I turned 65 in September, I continued to make contributions to my HSA account, and to pay for my family’s medical expenses using that account. It was only after I sat down to do our taxes that I discovered persons covered by Medicare are not eligible to contribute to an HSA account. I have only Medicare Part A (no Part B), as I am covered under my (much younger) wife’s employer-sponsored health insurance. The HSA institution has issued forms 5498-SA and 1099-SA. How can I correct this, and still take advantage of the tax benefits for the contributions made prior to September?

O

Opus 17

Employee

You are covered under a family HDHP? Does your spouse also have an HSA? What is the total amount you have each contributed this year, including payroll contributions by your spouse and free money from your spouse's employer? What is the current balance of your HSA? Is your spouse age 55 or older?

V

VelcroFaceAuthor

Employee

Yes, in 2018 we had a high-deductible ($6,500 per individual) health plan. My spouse does not have an HSA. I contributed $3,050 ($1,450 of that was after September, when I was covered under Medicare). Gross distribution for 2018 was $3,042. The current balance in my HSA is $314. My spouse is in her early 40s.

O

Opus 17

Employee

First of all, when either spouse has an HDHP, both spouses are considered to have an HDHP and both spouses are eligible to contribute to their own HSA. The limit is $6900 per person for 2018, but the combined limit for spouses is also $6900. Over age 55, you are eligible for an additional $1000 catch-up contribution. If you enrolled in Medicare in September, then your maximum contribution for 2018 would be $7900/12 x 8 months = $5925.

The fact that you made some of the contribution after September does not actually matter. Turbotax should not flag this as an excess contribution. In fact, you should be eligible to contribute an additional $2875 and take a tax deduction, if you do it before April 15 and if you inform the plan trustee that you are making a directed contribution toward your 2018 limit.

Once you own an HSA, you can spend the balance for qualified medical care for yourself, a spouse or a dependent, and the money is tax-free, even if you are no longer eligible to make new contributions. At age 65 or older, you can also withdraw the money for any reason and pay regular income tax but without the additional penalty for non-qualified use (similar to a regular IRA).

An HSA is owned only by one person, like an IRA, there are no joint HSAs. Your spouse is eligible to open an HSA in her name if she wants, there are many private banks that offer this, it does not have to be through her employer. She can make contributions directed to 2018 if they are made before April 15 and she informs the bank of her intentions, her contribution limit would be $6900 minus whatever you contributed**. Her contribution limit for 2019 would be $7000 (she is eligible even though you are not, as long as she is enrolled in qualifying HDHP.)

**Her contribution limit is actually a tad higher than that due to the effect of your $1000 catch-up provision, but I don't want to go through the math right now. If you really want to contribute every possible penny, I will help you figure out the amount.