Author Topic: HSA for an adult child - great benefit if one qualifies  (Read 3806 times)

MDM

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HSA for an adult child - great benefit if one qualifies
« on: September 04, 2015, 11:53:21 PM »
See http://www.bogleheads.org/forum/viewtopic.php?p=2612819#p2613153 and subsequent posts for more details, but the short version is this:

If your adult child up to age 26 is covered by your family HDHP, but does not qualify as your tax dependent, the adult child can open his own HSA as long as he meets all other HSA eligibility requirements.
Your adult child does not have to split the maximum contribution limit for a family with you as you would with your spouse. He or she can contribute up to the full maximum family limit—$6,650 in 2015 and $6,750 in 2016.

A somewhat narrow window of opportunity, but wow! for anyone able to take advantage.  Haven't seen this mentioned here.


teen persuasion

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #1 on: September 07, 2015, 07:00:26 AM »
Wow, that is interesting!  I had just recently learned that my DS2's expenses couldn't be paid from our HSA, but didn't realize he could open his own HSA.

Am I understanding correctly that he can contribute up to the family plan limit ($6650) in addition to our $6650 in our HSA, even though he is single?  Or is that up to the family limit IFF he has a family of his own?

MDM

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #2 on: September 07, 2015, 07:07:39 AM »
Am I understanding correctly that he can contribute up to the family plan limit ($6650) in addition to our $6650 in our HSA, even though he is single?
Yes!

From one of the bogleheads' posts (that in turn is quoting an IRS publication):
Quote
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements.
You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
You have no other health coverage except what is permitted under Other health coverage, later.
You are not enrolled in Medicare.
You cannot be claimed as a dependent on someone else's 2014 tax return.

So a non-dependent child covered by an HDHP plan fits all the qualifying requirements to be an eligible individual.

Paul der Krake

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #3 on: September 07, 2015, 07:25:19 AM »
That's pretty incredible. Unlike an IRA, there is no requirement that the adult child have at least the contribution amount as earned income for the year. Right?

From Pub 569:
Quote
Family members or any other person may also make contributions on behalf of an eligible individual.

Assuming a normal healthy adult child, for a mere $6,650 * 8 = $53,200 you can pre-fund and let both his retirement and lifetime health expenses grow tax-free for decades.

Niiiiiiice.

MDM

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #4 on: September 07, 2015, 07:52:04 AM »
That's pretty incredible. Unlike an IRA, there is no requirement that the adult child have at least the contribution amount as earned income for the year. Right?
There doesn't seem to be any income restriction in https://www.law.cornell.edu/uscode/text/26/223, so it seems your statement is correct.

teen persuasion

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #5 on: September 07, 2015, 08:12:09 AM »
Thanks, MDM, and for the link that explains that it is the type of HDHP account (self only vs family) that determines his funding max, not HIS status as single vs married. 

Next question: does an HSA account need to be in existence when expenses are incurred for those expenses to be later reimbursed from the HSA.  I've been paying health care expenses OOP, intending to reimburse us later, so I luckily never took out expenses for DS2 that he incurred a few years ago (not our dependent then), but can he now open an HSA and later reimburse himself for those expenses?  Or is that window closed since he had no HSA at the time?

MDM

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #6 on: September 07, 2015, 08:22:06 AM »
Or is that window closed since he had no HSA at the time?

An HSA is a good deal but it's not retroactive.  From http://www.irs.gov/publications/p969/ar02.html#en_US_2014_publink1000204081 (emphasis added):
Quote
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA.

teen persuasion

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #7 on: September 07, 2015, 09:02:48 AM »
Thanks, MDM.  That's what I thought.  I'll have to convince him to open one to at least run future expenses thru.

Cathy

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Re: HSA for an adult child - great benefit if one qualifies
« Reply #8 on: October 03, 2015, 08:26:58 AM »
MDM requested additional feedback on this thread.

The claim in the OP looks correct, assuming that (1) the child dependent can be said to be an "individual who has family coverage under a ... health plan", and (2) all other requirements of 26 USC § 223 are satisfied.

This reply is admittedly a bit vacuous because my requirement (2) ensures that no matter what the OP actually said, my statement is true. For what it's worth, I'm not the only one to write stuff like this. The Supreme Court of California has also been known to use this linguistic device. See, e.g., In Re Garcia, 58 Cal4th 440, 457 (CA Sup Ct 2014) (explaining that a state law satisfies a test set out in a named federal statute if the state law meets certain specifically mentioned requirements and also "otherwise satisfies the requirements" of the federal statute -- very informative indeed). The reason I went with that language here is that, otherwise, I would have to repeat most of the statute.
« Last Edit: October 03, 2015, 11:20:51 AM by Cathy »