Help with 2018 HSA contribution limit (child turns 26 in December 2018)

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IlliniDave
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Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by IlliniDave » Mon Oct 30, 2017 12:55 pm

Hi everyone.

I am single (divorced) and will be covering my youngest daughter on my health insurance next year until her 26th birthday (12/21/2018). My insurance plan, through my employer, is an HSA-eligible plan. I would like to contribute the maximum I can (legally) to the HSA. I believe I can contribute based on a family plan limit (as I have been in past years), but I'm having trouble finding guidance for my situation. I have no other dependents so will only be insuring myself for the last 11 days of the year, but will have a family plan for 11 months and 20 days.

Anyone know how that works, or have a suggestion where I can go to find a straightforward way to determine this?
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tfb
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by tfb » Mon Oct 30, 2017 2:14 pm

Coverage is determined on the 1st of each month. Covering yourself and your daughter from Jan. 1 to Dec. 1 inclusive means you have family coverage for all 12 months.
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SuzBanyan
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by SuzBanyan » Mon Oct 30, 2017 2:20 pm

HDHP/HSA eligible insurance will cover your daughter to the end of the month in which she turns 26, which for her is to the end of December.

Thus, you can contribute the full family plan amount for 2018 to your HSA.

However, even though your daughter is on your insurance plan, you cannot reimburse her medical expenses from your HSA unless she is also your dependent. Most 24 and 25 year olds are no longer their parents’ dependent, even though the ACA allows them to be covered by a family health insurance plan.

The good news is that a non-dependent covered by an HSA eligible plan can open her own HSA and fully fund it with the maximum amount allowed for a family plan.

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FiveK
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by FiveK » Mon Oct 30, 2017 11:10 pm

Both tfb and SuzBanyan are correct, but if you want IRS confirmation, see 2016 Publication 969 - p969.pdf. For a tax manual, it's quite comprehensible. :happy

IlliniDave
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by IlliniDave » Wed Nov 01, 2017 11:00 am

FiveK wrote:
Mon Oct 30, 2017 11:10 pm
Both tfb and SuzBanyan are correct, but if you want IRS confirmation, see 2016 Publication 969 - p969.pdf. For a tax manual, it's quite comprehensible. :happy
Thanks,

I looked at that and found it of little help to me (could be I did a poor job reading it). I'm going with the little flow diagram in the Form 8889 instructions and keeping my fingers crossed. Seems to work on the first of the month principle mentioned above.
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IlliniDave
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by IlliniDave » Wed Nov 01, 2017 11:11 am

SuzBanyan wrote:
Mon Oct 30, 2017 2:20 pm
HDHP/HSA eligible insurance will cover your daughter to the end of the month in which she turns 26, which for her is to the end of December.

Thus, you can contribute the full family plan amount for 2018 to your HSA.

However, even though your daughter is on your insurance plan, you cannot reimburse her medical expenses from your HSA unless she is also your dependent. Most 24 and 25 year olds are no longer their parents’ dependent, even though the ACA allows them to be covered by a family health insurance plan.

The good news is that a non-dependent covered by an HSA eligible plan can open her own HSA and fully fund it with the maximum amount allowed for a family plan.
Thanks,

My daughter gets bounced from my plan at 11:59:59 PM on the night before her 26th birthday per my employer's benefits documentation (unless there was a gov't change mandating extension to the end of the month or something that happened late in 2017 that wasn't reflected yet). Nevertheless, unless I am badly mistaken the only thing that matters is that she was on my plan on first of each of all 12 2017 months (meaning I had a family plan for all 12 months of the year), and can apparently contribute the family max.

I'm aware of her expenses not being eligible, she hasn't been a dependent for tax purposes for 7+ years now--I think I started a thread about that in years past just verifying that I was reading that contribution/eligible expense inconsistency correctly.
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IlliniDave
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by IlliniDave » Wed Nov 01, 2017 11:16 am

tfb wrote:
Mon Oct 30, 2017 2:14 pm
Coverage is determined on the 1st of each month. Covering yourself and your daughter from Jan. 1 to Dec. 1 inclusive means you have family coverage for all 12 months.
Thanks. It took me a while to work this out, but my conclusion aligns with you statement so I think I did it right. Most of the available verbiage is about the case where someone becomes HSA-eligible during in the year, not a lot about transitioning the other direction. I found what was the Rosetta Stone for me in the Form 8889 instructions.
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Spirit Rider
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by Spirit Rider » Wed Nov 01, 2017 12:15 pm

IlliniDave wrote:
Wed Nov 01, 2017 11:00 am
I looked at that and found it of little help to me (could be I did a poor job reading it). I'm going with the little flow diagram in the Form 8889 instructions and keeping my fingers crossed. Seems to work on the first of the month principle mentioned above.
The information is there in Publication 969. It is just that sometimes it is obscured, obtained by inference of multiple points, or based on what isn't stated. The point about coverage on the first day of the month is on the top of page 3, "Qualifying for an HSA", bolded part of first bullet.

Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements.
  • You are 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 aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone else's 2016 tax return.
Limit on Contributions
The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual,and the date you cease to be an eligible individual.

She can open her own HSA account and make her own contribution up to the family plan limit as stated by SuzBanyan in the last sentence of her post.

The first and last bullets from above establish your daughter as an HSA eligible individual who can open an HSA account and make contributions. The "Limit on Contributions" from the bottom of page 4, establishes that since she is covered under a family HDHP plan, her HSA contribution limit is the maximum family plan limit. There is no requirement that this contribution reduces the parents contributions or vice versa.

This is caused by the fact that Obamacare changed the definition of dependent for healthcare coverage purposes, but did not change the definition of dependent of for income tax purposes, which is what the HSA code section uses.

Note: She has until 04/17/18 to open an HSA account. She and/or you on her behalf have until then to contribute up to the 2017 maximum family contribution of $6,750. She should open and at least initially fund the HSA account as soon as possible. Unfortunately, she will not be able to be reimbursed for any qualified medical expenses with service dates before then. Once established and funded, she will be able to be reimbursed from the HSA account tax-free for any qualified medical expenses that occur anytime after that date. Including any future out-of-pocket expenses that occur in the future, whether on a HDHP plan or not.

IlliniDave
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Re: Help with 2018 HSA contribution limit (child turns 26 in December 2018)

Post by IlliniDave » Thu Nov 02, 2017 3:02 am

Spirit Rider wrote:
Wed Nov 01, 2017 12:15 pm
IlliniDave wrote:
Wed Nov 01, 2017 11:00 am
I looked at that and found it of little help to me (could be I did a poor job reading it). I'm going with the little flow diagram in the Form 8889 instructions and keeping my fingers crossed. Seems to work on the first of the month principle mentioned above.
The information is there in Publication 969. It is just that sometimes it is obscured, obtained by inference of multiple points, or based on what isn't stated. The point about coverage on the first day of the month is on the top of page 3, "Qualifying for an HSA", bolded part of first bullet.
Thanks, I can't dispute that there may be some way to infer/connect dots consisting of missing information etc., I just like to be more certain when it comes to the IRS and avoiding their nice little penalty taxes. Luckily the instructions for Form 8889 had a reasonably clear answer to the question I had in the OP--it's a flow diagram and worksheet to calculate contribution limits that covers what's happening to me next year. Why they couldn't have put that info in Pub 969 is a mystery to me (one I don't really want to know the answer for).
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