The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: fiveoh on January 06, 2013, 08:10:41 AM
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I opened my HSA account in may of 2012. I contributed the full amount for the year and thought nothing of it until I read this :
"Contributions for Partial Year Coverage
A 2006 change in the HSA law allows individuals whose HDHP coverage begins part of the way into the year to make the full annual contribution amount for their first year of HSA eligibility. This change in the law was intended to help people fully fund their HSA accounts, especially since many insurance plans apply the full year deductible amount even though coverage might be in effect less than 12 full months. To take advantage of this rule, the individual’s HDHP coverage must take effect any time after January 1 but no later than December 1. Normally, less than full-year HDHP coverage would require the individual to pro-rate their HSA contribution for the year based on the number of months they had HDHP coverage. However, to avoid having to pay back any of the “extra” contribution amount, the individual must remain covered by an HDHP through December 31 of the following calendar year. If the individual does not remain covered by HDHP during this “testing period,” the extra amount (i.e., the difference between the amount actually contributed and the pro-rated amount that would have been allowed) must be included in the individual’s income and will be subject to a 10 percent additional tax. If you are unsure or know that you’re not going to keep your HDHP coverage through December 31of the following year, you may be better off prorating your contributions for your first year of HSA eligibility. "
Just to make sure Im understanding this right.... it's basically saying as long as I keep my HDHP until Dec 31 of 2013 i'm fine for contributing the full amount for 2012. Is that correct?
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Your understanding appears correct to me.
I get upset that arcane rules are applied to HSA accounts (not this rule, it's a good one, but lots of others), they should be kept super simple since they are one way consumers can take control of their health care spending and make a real difference in the crisis of rising health care costs we have going on. Everyone should be able to opt into HSA's, there should be simple and obvious rules, and health care organizations would start to compete for those dollars since they would get paid the full amount up front in cash.
Glad you are on the HSA wagon! It has worked very well for us, we are more conscious of our health care spending and it has remained a good option for us over time.
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Yes, you're fine as long as you continue coverage for every month through Dec 31, 2013.
However, if you think there's a decent chance that's not going to be the case, I think you can still withdraw the excess contributions without penalty (plus withdraw any interest/earnings from that contribution and report that taxable excess under "other income") as long as you do it before you file your taxes for 2012.
Otherwise, if you don't meet the requirements for the testing period, you'd have to pay taxes on 5/12 of your contribution plus a 10% penalty on it.
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Thanks for the clarification guys.