Every year, Health Savings Account (HSA) owners have to figure out how they’ll fund their accounts. If the HSA is through their employer, they can make pre-tax contributions each pay period. But did you know there are other ways to fund your HSA? Check out these five things you may not know about HSA contributions.
The first and most important thing to remember about making HSA contributions is that you have to be covered under a qualified High Deductible Health Plan (HDHP). While HSA owners keep their account forever – even if you change employers or insurance plans – there are no exceptions to the HDHP requirement.
However, you can continue using your HSA money, even if your insurance coverage changes.
If you don’t fund your HSA through a payroll deduction, you can make contributions after taxes are applied to your paycheck. Usually this is done by people who have their own HDHP that was not purchased through their employer.
You can still enjoy the tax benefits of an HSA, but you’ll have to claim the deductions on your tax return through form 8889.
Before the New Year starts, people often update their contribution amounts. That’s because each year the IRS publishes the HSA contribution limits for the following year. Check out the HSA Contribution Limits for 2020:
2020 HSA Contribution Limits
However, did you know that you can update your contribution amount AT ANY TIME? Let’s say that you get into the year and need to cut back a little. You can do that. Or perhaps you realized that you weren’t putting enough in. You can bump up your contributions (to the annual limit), as well.
Did you know that anyone can fund your HSA? That’s right. Your employer, your parents, your spouse, or even Bill Gates could (but he probably won’t).
No matter who puts money into your account, the annual contribution limit applies for the combined total. For instance, in 2020, let’s say that your company puts in $1,000. If you have family coverage, you can put in a max of $6,100 (for single coverage it would be $2,550) in HSA contributions.
If you go over the limit, you will be subject to taxes on the difference.
Do you have an Individual Retirement Account (IRA) or Roth IRA? According to IRS Publication 969, “a qualified HSA funding distribution may be made from your traditional HRA or Roth IRA to your HSA.”
It’s important to note that you can only do this once in your lifetime, and it counts towards your annual HSA contributions. If you’re going to use this once-in-a-lifetime trick, you should make the most of it. Here are some good reasons to use this method:
Make the most out of your HSA contributions next year. If you have more questions, contact your benefits administrator or HR department.