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Health Savings Accounts (HSAs) - Contributions Q&A #2

Posted by Russ Swallow on Fri, Nov 18, 2011 @ 10:21 AM
  
  
  
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HSA Contributions – Q&A #2
 
Q. How do catch-up contributions work?  What happens if individuals become eligible to make a catch-up contribution mid-year?
 
A. Accountholders who have attained age 55 by the end of the taxable year can make an additional $1,000 annual catch-up contribution to their HSAs as long as they remain HSA eligible (e.g. they are not enrolled in Medicare).  They do not have to pro-rate the contribution based on when during the taxable year their 55th birthday occurs, assuming they remain HSA eligible.  In other words, an individual described above born January 7 and an individual described above born December 26 of the same year can both make the $1,000 catch-up contribution to their respective HSAs in 2011, as long as they qualify as HSA eligible for all 12 months of the calendar year.

Catch-up contributions are generally subject to the same rules as “regular” HSA contributions based on contract type when the accountholder is not HSA eligible throughout the calendar year.
 
Accountholders eligible to make catch-up contributions must deposit the contributions into their own HSAs.  Example: A husband and wife both are eligible to make a catch-up contribution. He maintains an HSA to reimburse his own and his wife’s expenses.  She too can make a catch-up contribution, but she must make the contribution into her own HSA.  In this case, her husband will maintain his HSA, she will open her own HSA, and they can reimburse each other’s eligible expenses tax-free (but the same eligible expense cannot be reimbursed twice on a tax-free basis).
 
As you are aware, to be eligible for an HSA, you must be enrolled in a qualified high deductible health insurance plan.

We recommend that you and your client review these issues with legal counsel.

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