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HSA Question

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  •  orthodoc2018 
    Participant
    Status: Physician
    Posts: 23
    Joined: 07/18/2018

    So I’m new to the HSA arena.  I had thought this would be my only way to get my pre-tax retirement savings underway since I don’t have access to a 401k at this time (employer’s rules) but now I’m reading more and thinking maybe I can’t even get pre-tax money into my HSA.  My employer health coverage policy is an “HSA-eligible” plan but my employer does not have a “section 125 plan”.  Am I still able to make pre-tax contributions to an HSA individually?  Either through HSA Bank or Lively?  If not, would it even be worth it to contribute to an HSA?  Post-tax money that yes grows tax free but then is taxed (again?) if not used for medical expenses?

    #170093 Reply
     jz 
    Participant
    Status: Physician
    Posts: 578
    Joined: 01/09/2016

    Your HSA account may be independent of your employer.  Many choices for pretax contributions.

    #170097 Reply
     blitz 
    Participant
    Status: Spouse
    Posts: 10
    Joined: 08/09/2017

    Lively used to be the HSA administrator of choice, but if you’re planning on just investing the HSA, most Bogleheads would now suggest Fidelity.

    #170100 Reply
     orthodoc2018 
    Participant
    Status: Physician
    Posts: 23
    Joined: 07/18/2018

    Nice thanks – I already have my and my wife’s Roth IRAs at Fidelity so that’s definitely easier.  I imagine it saves the $2.50/month fee to invest that Lively has.

    Where my confusion was coming from was that the Lively rep made it sound like if not done through an employer, the HSA contributions would be post-tax no matter what but what I took away from that was that I couldn’t even deduct the contributions on my taxes which is clearly not the case.

    If my wife and I are on one family health insurance plan together, I assume we are limited to the one HSA between the two of us (does it have to be the primary on the account?) at a maximum contribution of $6,900 correct?  Then, if the HSA is in my name but the medical expense is for my wife, how does that work?

     

    Thank you all!

    #170102 Reply
     G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1093
    Joined: 01/08/2016

    Nice thanks – I already have my and my wife’s Roth IRAs at Fidelity so that’s definitely easier.  I imagine it saves the $2.50/month fee to invest that Lively has.

    Where my confusion was coming from was that the Lively rep made it sound like if not done through an employer, the HSA contributions would be post-tax no matter what but what I took away from that was that I couldn’t even deduct the contributions on my taxes which is clearly not the case.

    If my wife and I are on one family health insurance plan together, I assume we are limited to the one HSA between the two of us (does it have to be the primary on the account?) at a maximum contribution of $6,900 correct?  Then, if the HSA is in my name but the medical expense is for my wife, how does that work?

     

    Thank you all!

    Click to expand…

    Ideally you get it taken out of your paycheck saving you a little bit because you are paying less of your portion of (FICA?) tax (I’m sure the tax guys on here can explain exactly–I recall it being $100/yr or so).  If you don’t, you just contribute on your own and then claim a deduction when you file your 1040. Yes, you get one HSA per insurance policy.  Yes, 6900 for this year.  If your wife is on your plan, but has an expense, you can reimburse yourself for paying for it.

    I don’t know anything about Lively, but if their rep was that helpful, I would totally go with Fido.  Or actually anybody except Lively.

    #170106 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6110
    Joined: 01/09/2016
    If my wife and I are on one family health insurance plan together, I assume we are limited to the one HSA between the two of us (does it have to be the primary on the account?) at a maximum contribution of $6,900 correct?  Then, if the HSA is in my name but the medical expense is for my wife, how does that work?

    Click to expand…

    Yes, you will have a family HSA at a max contributed (yourself+employer) of $6,900. I believe both names will be on the account, same as on your insurance account, and you will both get debit cards. But I would rather let the account grow tax-free, myself.

    the Lively rep made it sound like if not done through an employer, the HSA contributions would be post-tax no matter what but what I took away from that was that I couldn’t even deduct the contributions on my taxes which is clearly not the case.

    Click to expand…

    Not true, no such thing as a post-tax HSA contribution…unless he was talking about a post-FICA tax contribution, which may have been what he meant. If you have an employer plan and contribute via payroll withholdings, the contributions reduce FICA wages in addition to income taxable wages. If you contribute on your own, you don’t get the FICA tax savings but you still get the income tax savings via an above-the-line (page 1) deduction on your 1040.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #170142 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1246
    Joined: 02/01/2016

    Technically, the Lively rep was correct, but it is a distinction without a difference and misleading to you and many people.

    HSA contributions by payroll deduction through an employer’s Section 125 plan are made before income and FICA taxes are withheld. You do not take a deduction on Form 1040 for such contributions, because the contributions are already reflected in reduced wages reported on your W-2 Box 1.

    Direct HSA contributions like traditional IRA contributions are from money that has already been taxed and is then deducted on your Form 1040 tax return.

    The term pre-tax originated before IRA and HSA contributions existed and were used to describe both employee retirement plan deferrals and their taxable distributions. Traditional IRA contributions have always been from after tax funds, but deducted and with taxable distributions. Even though IRA contributions are from after-tax funds, convention has referred to such deductible contributions, balances and distributions as “pre-tax”

    HSA contributions are unique in that they can be made from pre-tax and/or after-tax funds and then deducted. Distributions are even more complicated and can be taxable with (no, 10% or 20% penalties) or tax-free. Since traditional IRAs existed for 30 years before HSAs, the same conventions are typically used. So HSA contributions whether by payroll deduction or direct and deducted are commonly both referred to as pre-tax deductions. At the end of the day your AGI is the same either way.

    #170161 Reply
     orthodoc2018 
    Participant
    Status: Physician
    Posts: 23
    Joined: 07/18/2018

    Great – thanks so much for the replies.

    Yeah – I now realize they were telling me exactly what I already thought I knew but I ended up concluding the opposite based on what they told me!

    I think I got it all set now – thanks!

    #170212 Reply
     HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 76
    Joined: 12/28/2016

    Piggybacking on this thread, if I may. If I am enrolled in an HSA qualified med insurance plan for the whole year but has not opened a HSA account yet, can you open one and contribute the full 6900 for 2018?

    We will have the same med plan next year and am considering payroll deductions through our company for next year. When I tried with Select Account earlier this year they told we could not open an account with them and contribute as we only had 4-5 staff at that time.

    #170224 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6110
    Joined: 01/09/2016
    Piggybacking on this thread, if I may. If I am enrolled in an HSA qualified med insurance plan for the whole year but has not opened a HSA account yet, can you open one and contribute the full 6900 for 2018?

    Click to expand…

    Yes, that is permitted. Since you had an eligible plan for the full year, you wouldn’t even be subject to the last month rule.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #170262 Reply
    Liked by spiritrider
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1246
    Joined: 02/01/2016
    Piggybacking on this thread, if I may. If I am enrolled in an HSA qualified med insurance plan for the whole year but has not opened a HSA account yet, can you open one and contribute the full 6900 for 2018?

    Click to expand…

    Yes, that is permitted. Since you had an eligible plan for the full year, you wouldn’t even be subject to the last month rule.

    Click to expand…

    One major caveat. If you have not previously had an HSA or a zero balance in all HSA plans for > 18 months, the establishment date of the HSA will be after you open and fund the HSA. You can not make qualified distributions for qualified medical expenses that occur before the establishment date. E.g. if you were to open and fund the HSA account on 12/1. You can not take tax-free reimbursements for qualified medical expenses with service dates from 01/01/2018 – 11/30/2018.

    #170293 Reply
    Liked by jfoxcpacfp
     jacoavlu 
    Moderator
    Status: Physician
    Posts: 1140
    Joined: 03/01/2018

    Piggybacking on this thread, if I may. If I am enrolled in an HSA qualified med insurance plan for the whole year but has not opened a HSA account yet, can you open one and contribute the full 6900 for 2018?

    We will have the same med plan next year and am considering payroll deductions through our company for next year. When I tried with Select Account earlier this year they told we could not open an account with them and contribute as we only had 4-5 staff at that time.

    Click to expand…

    I don’t know about “Select Account.” But you should just consider Fidelity’s HSA. It’s free. Opening an account takes like 5 minutes. You’ll get routing numbers that you can provide to your staff/payroll provider to make the deposit.

    Note that if you are owner of the business the handling of the contribution from a tax perspective is similar to that of health care premiums. This may depend on your business structure. It definitely applies to an S corp >2% shareholder. Contributions are added to your W2 Box 1 comp, but not box 3, therefore FICA exempt if done through payroll. Then deducted on your personal return.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #170297 Reply
     HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 76
    Joined: 12/28/2016

    Piggybacking on this thread, if I may. If I am enrolled in an HSA qualified med insurance plan for the whole year but has not opened a HSA account yet, can you open one and contribute the full 6900 for 2018?

    We will have the same med plan next year and am considering payroll deductions through our company for next year. When I tried with Select Account earlier this year they told we could not open an account with them and contribute as we only had 4-5 staff at that time.

    Click to expand…

    I don’t know about “Select Account.” But you should just consider Fidelity’s HSA. It’s free. Opening an account takes like 5 minutes. You’ll get routing numbers that you can provide to your staff/payroll provider to make the deposit.

    Note that if you are owner of the business the handling of the contribution from a tax perspective is similar to that of health care premiums. This may depend on your business structure. It definitely applies to an S corp >2% shareholder. Contributions are added to your W2 Box 1 comp, but not box 3, therefore FICA exempt if done through payroll. Then deducted on your personal return.

    Click to expand…

    Thank you all for the information. I am planning on opening a HSA through work (hopefully with Fidelity itself) for next year. If I open a personal HSA account for my spouse (whose ins I am a dependent of along with our kids) with Fidelity, can that account be used next year to fund it through payroll? My spouse is the S corp > 2% shareholder and our s-corp is paying the ins premiums currently.

    #171206 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1246
    Joined: 02/01/2016

    thank you all for the information. I am planning on opening a HSA through work (hopefully with Fidelity itself) for next year. If I open a personal HSA account for my spouse (whose ins I am a dependent of along with our kids) with Fidelity, can that account be used next year to fund it through payroll? My spouse is the S corp > 2% shareholder and our s-corp is paying the ins premiums currently.

    Click to expand…

    I’m not sure I fully understand the circumstances.

    If you are covered under your spouse’s health insurance plan you can not contribute to an HSA through your employer’s Section 125 plan. That is only allowed if you have the HDHP through that same plan. If you mean that you are being covered by your employer’s health insurance plan next year. You can contribute to an HSA through Section 125 deductions.

    While it is technically possible for a Section 125 plan to allow participants to select an HSA custodian of choice, very few do. Unless Fidelity is your plan’s designated custodian it is very unlikely you can use them. Also, HSA accounts are individual accounts and Section 125 HSA contributions can not go to your wife’s account.

    An additional caveat. The self-employed health insurance deduction is not allowed if the business owner or their spouse is eligible for their employer’s group health insurance coverage, regardless if they elect such coverage or not.

    #171252 Reply
     HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 76
    Joined: 12/28/2016

    thank you all for the information. I am planning on opening a HSA through work (hopefully with Fidelity itself) for next year. If I open a personal HSA account for my spouse (whose ins I am a dependent of along with our kids) with Fidelity, can that account be used next year to fund it through payroll? My spouse is the S corp > 2% shareholder and our s-corp is paying the ins premiums currently.

    Click to expand…

    I’m not sure I fully understand the circumstances.

    If you are covered under your spouse’s health insurance plan you can not contribute to an HSA through your employer’s Section 125 plan. That is only allowed if you have the HDHP through that same plan. If you mean that you are being covered by your employer’s health insurance plan next year. You can contribute to an HSA through Section 125 deductions.

    While it is technically possible for a Section 125 plan to allow participants to select an HSA custodian of choice, very few do. Unless Fidelity is your plan’s designated custodian it is very unlikely you can use them. Also, HSA accounts are individual accounts and Section 125 HSA contributions can not go to your wife’s account.

    An additional caveat. The self-employed health insurance deduction is not allowed if the business owner or their spouse is eligible for their employer’s group health insurance coverage, regardless if they elect such coverage or not.

    Click to expand…

    We both work for the same company and wife is the owner of the s-corp. I am a dependent on her insurance. I am trying to see if we can open a HSA account on her (our) name and contribute $6900 this year and use the same account and contribute through payroll next year. I get to chose our company plan custodian and I am trying to see if Fidelity does small business HSA plans. If it is possible to contribute through payroll next year, should the family contribution be through her paycheck (pay over SS cutoff point) or can it be from mine (lot lower than SS limit and presumably save on FICA)?

    #171266 Reply

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