Front-loading HSA?

[hernandz]

Open enrollment season brings questions. Appreciate your thoughts and understand that nobody knows how Congress will affect.
 
I will finish my B.A. in April, so I may consider changing jobs at that time, so I thought I might try front-loading the HSA, since fewer jobs offer them, but have been told that the max HSA contribution is pro-rated to the number of months you have an HDHP.  Is that the general understanding? 

If I stay at current job, front-loading offers extra time in the market.
If the new company offered an HDHP, I don't lose that extra time in the market, no other advantage to front-loading?
If the new company did not offer an HDHP, I would have to pay for an individual HDHP to ensure my front-loading max contribution stayed at $3,450?
If I don't manage to get an HDHP after I leave, could I rebate a portion of my HSA contribution to an IRA -- but would I invoke penalties?   

I currently max the HSA and contribute ~$10,000 to the 401k.  I'm not sure I could swing front-loading 10K to the 401k.  I don't HAVE to change jobs, but weighing some options. 

[anotherAlias]

Open enrollment season brings questions. Appreciate your thoughts and understand that nobody knows how Congress will affect.
 
I will finish my B.A. in April, so I may consider changing jobs at that time, so I thought I might try front-loading the HSA, since fewer jobs offer them, but have been told that the max HSA contribution is pro-rated to the number of months you have an HDHP.  Is that the general understanding? 

If I stay at current job, front-loading offers extra time in the market.
If the new company offered an HDHP, I don't lose that extra time in the market, no other advantage to front-loading?
If the new company did not offer an HDHP, I would have to pay for an individual HDHP to ensure my front-loading max contribution stayed at $3,450?
If I don't manage to get an HDHP after I leave, could I rebate a portion of my HSA contribution to an IRA -- but would I invoke penalties?   

I currently max the HSA and contribute ~$10,000 to the 401k.  I'm not sure I could swing front-loading 10K to the 401k.  I don't HAVE to change jobs, but weighing some options.

it is my understanding that if you front load and don't have a HDHP for the full year you have to do a special kind of withdrawal from your HSA of the pro-rated amount.  The person that I heard this from suggested avoiding it if you can because it can be a PITA.

[Dezrah]

OP, you have it right.

Seriously though, don't overthink it.  The real dollar difference between front loading $3,450 versus spacing it out over 12 months is negligible.  It's definitely not going to make or break either way.

That said, if you want to front load anyway, go for it.  It's a little bit of a hassle to course-correct mid-year, but it's on par with closing a bank account or rolling over a 401k. 

Also keep in mind, even if you screw it up royally, you only get in trouble if the IRS audits you and catches it.  If that happens, you'll pay a relatively minor penalty for your oops.  I'm not suggesting this, but if you appreciate that this is your worst case scenario, the whole thing is a lot less scary.

[hernandz]

So, a very quick look on the not-quite-batshit  portion of the internet indicates that front-loading an HSA can be trickier if you aren't enrolled the whole year.  Relatively few folks here felt confident to advise how to avoid the pitfalls, so I think I will toe the line and pro-rate my payroll deduction as though I know I am staying here the entire year.  I will look at increasing my 401k contribution this year, instead.   

https://www.bogleheads.org/forum/viewtopic.php?t=92074
https://www.irs.gov/pub/irs-pdf/p969.pdf


Thinking further about justchristine's comment, I imagine that the PITA special withdrawal has to do with the fact that the HSA money is FICA-exempt, and pre-tax retirement plans (IRA/401k) are not FICA-exempt, so you can't just throw excess of one into the other. 

Thanks justchristine and Dezrah. I truly appreciate having someone to bounce these ideas around.  Your comments track with what I am finding. 

[Dictionary Time]

Oh No!

How do you fix it if you have had too much taken out?

According to the booklet (which I should have read before I contributed, obviously), you have to divide the maximum between spouses.  I did not know this, I thought he was good with the family max and I could have the single max.

Now we have put in 8K total, and even if I manage to stop all contributions now, it's too late!

Can I get a divorce in the next 6 weeks, will that work??

Why did I not know this?

[seattlecyclone]

Oh No!

How do you fix it if you have had too much taken out?

According to the booklet (which I should have read before I contributed, obviously), you have to divide the maximum between spouses.  I did not know this, I thought he was good with the family max and I could have the single max.

Now we have put in 8K total, and even if I manage to stop all contributions now, it's too late!

Can I get a divorce in the next 6 weeks, will that work??

Why did I not know this?

It's really not a big deal. You have two options here:

1) Call up one of your HSA providers to have the excess (and any growth on this part of your contribution) withdrawn. This amount will count as income for this year.
2) Leave the extra in there. You can't deduct it from your income this year, and you'll also have to pay a 6% penalty tax on the excess amount this year and every following year that you fail to correct the excess contribution. One way to correct the over-contribution is to simply subtract this year's excess from next year's maximum and contribute only that much next year.

Here's some IRS documentation about this.

If your HSA has been invested in the stock market this year, it has probably grown enough that there's likely not much financial difference between the two options. You can include the original contribution plus growth in your income and pay your standard marginal tax rate on it, or you can include only the original contribution in your income, pay an additional 6% tax on only that amount, and deduct it from your income next year when you under-contribute to make up for over-contributing this year.

[Dictionary Time]

Thanks for talking me down.  No divorce needed, good thing since I am kind of attached to him.

I think we'll see if we can reverse it.  It's all in a savings account since I've had some health issues and didn't want to risk it, so the earnings will be negligible.

[charis]

Thanks for talking me down.  No divorce needed, good thing since I am kind of attached to him.

I think we'll see if we can reverse it.  It's all in a savings account since I've had some health issues and didn't want to risk it, so the earnings will be negligible.

My HSA allows us to withdraw excess contributions right online - it's a simple transaction.  I've had to do it the past two years and will likely have to do it again this year. The HSA then sends me a tax form related to the withdrawal of excess contributions and I include it in my tax return software when I'm preparing our return.   

It's possible that I might get audited because I screwed it up some how, but crossing my fingers.