can you change hsa contributions mid year

A health savings account (HSA) can exist a great manner to save money for medical expenses. It is important to understand the rules and regulations that come with having an HSA. In this article, we'll swoop into the nuts of HSA contribution limits. We will likewise break downward all the nuances that come up if you gain or lose HSA eligibility throughout the year.

Contents:

• HSA Eligibility
• HSA Contribution Limits
• Mid-Year Changes in Eligibility
• Mid-Year Changes in Coverage Type

HSA Eligibility

Being eligible for an HSA means you currently take the qualifications to open and contribute to an HSA. It doesn't mean that you already have an open account or that yous can contribute indefinitely.

The main cistron that makes y'all eligible for an HSA is beingness enrolled in a qualified high deductible wellness plan (HDHP). There are a few other factors that come up into play too. If yous aren't certain if you're eligible, cheque out our complete guide to HSAs.

Below is a chart detailing 2022 HSA-qualified health plans:

HSA eligibility always starts on the first of a month. For example, if y'all enroll in a HDHP on June xv, and you meet all eligibility requirements, you volition be HSA-eligible on July 1.

HSA Contribution Limits

There are a couple of factors that affect how much you lot tin contribute to your HSA. Contribution limits for HSAs depend on your age and whether you accept family unit or private merely coverage. Contribution limits utilize to the agenda year (and tax year). The following limits are for 2022.

Mid-Twelvemonth Changes in Eligibility

If you are HSA qualified all yr long and have an open business relationship, the contribution limits are pretty straightforward.

Condign Eligible Mid-Year

Condign eligible for an HSA mid-yr is a mutual occurrence. It may happen if your employer changes insurance plans mid-year, or if you become a new chore with a different insurance plan.

Recall, HSA eligibility always starts on the start of the month. Permit'south say you got a new job with an individual HDHP and you meet all HSA eligibility requirements. You enroll in the program on June fifteen, and you get HSA-eligible on July 1.

Allow's say y'all stay at the chore all year and your insurance plan and eligibility don't alter. That means you are HSA-eligible for six months (July, August, September, Oct, Nov, and December).

Your contribution amount volition be prorated.

Here's how this works out:

Individual Contribution Limit for 12 months = $3,600

$3,600 x 6/12 = $ane,800

Then your contribution limit for this twelvemonth will be $1,800, because you became eligible on July 1.

Your maximum corporeality you tin contribute for this year volition be $ane,800, because yous became eligible for an HSA on July 1.

Another way to recall of this is to break down the contribution limit from annually to monthly.

If the limit is $3,600 for the twelvemonth, that is the same as contributing $300 every month.

$300 10 six = $1,800

Of course, there are no contribution limits by month, but this tin can be an easy way to remember how to prorate your contribution limit. Don't like manual math?

Losing Eligibility Mid-Year

The aforementioned prorating happens if y'all stop being HSA-eligible mid-year. This happens often for people enrolled in medicare coverage.

Here's a real-life example:

Allow's say yous start the year with an HSA, so lose your eligibility on September 15. You lot were HSA-eligible for nine months of the year, including September, every bit yous were eligible on the first day of September.

Hither's how the math looks for an private over the age of 55:

$iii,600 x 9/12 = $two,700

Plus, yous can brand a $1,000 annual HSA catchup. Prorated, that is:

$1,000 x 9/12 = $750

Your total contribution limit would be $2,700 + $750 = $three,450

Temporarily Losing Eligibility

There are a few things you lot could exercise that may make you lot temporarily ineligible for an HSA. This includes receiving medical benefits from a Veteran's Diplomacy or an Indian Health Services facility. You lot are not eligible to contribute to an HSA if you received medical benefits from one of these entities in the preceding three months.

For example, let'due south say yous had an injury and received treatment at a VA hospital on June 5. You cannot contribute to your HSA for the months of July, August, and September.

But you can contribute for June, as you were eligible on the first of the month. So that means that for an individual, you tin can simply contribute $two,700 for the year, instead of $3,600.

The Terminal Month Rule

There's an important caveat to the info above — the Terminal Month Rule (also chosen the "total contribution rule"). The concluding calendar month rule says if you are HSA-eligible on December 1, so you can choose to contribute the full amount for the twelvemonth, fifty-fifty if you weren't eligible for the whole twelvemonth.

The grab? There is a testing period of twelve months. This means y'all must stay eligible through the end of the next yr, or else yous will face taxes and penalties.

For instance, allow's expect at the individual higher up who became HSA-eligible on December 1. They choose to contribute the full $three,600 for the year. They must continue to be eligible all the mode through December 31, 2022. If they don't, their excess contributions volition be taxable and subject to a ten% penalty.

The final month rule presents an opportunity for you to weigh the risks and rewards of making a full contribution. If you foresee no alter to your task or eligibility status, and you want to build up your HSA savings, then it may exist the right thing for you to do. Simply if you are planning on changing your job or changing your coverage, then it may not be the right motion.

Mid-Year Changes in Coverage Type

A prorated contribution limit also applies if the type of coverage you take changes. This happens if you lot switch from an individual to a family insurance plan or vice versa.

Switch from Individual to Family Coverage

Let's say yous start the yr with individual coverage, so you become married. You switch to family HDHP coverage on May 15. This means you spent the offset five months of the year eligible for private contribution limits and the remainder of the twelvemonth eligible for family contribution limits.

Hither'south how the math breaks down:

$three,600 ten five/12 = $ane,500

$seven,200 x 7/12 = $4,200

$one,500 + $iv,200 = $5,700 total contribution limit for the year

The concluding calendar month rule does use to this situation. And then if yous feel confident you will remain HSA-eligible with a family unit programme through the final 24-hour interval of the next year, and then yous may want to contribute the full $7,200 for the year.

Switch from Family to Individual Coverage

Permit's say you switch from family coverage to individual coverage starting May fifteen. That means yous spent five months with family coverage and seven months with individual coverage.

Here'due south the math:

$7,200 x 5/12 = $3,000

$3,600 x seven/12 = $2,100

$3,000 + $2,100 = $5,100 total contribution limit for the year

Staying on Top of Contributions Now Can Prevent Headaches Later

The most important thing to recollect about contributions to your HSA is to stay informed and proactive. It's easy! Calculate exactly how much you lot want to contribute for the yr and know when you desire to make those contributions.

Many choose to contribute automatically with every payroll. Others choose to practise it all in 1 lump sum at the finish of the year. Some cull to max out their HSA. Others choose to contribute a lower amount to focus one other financial goals.

Whatever you lot do, staying informed of your choices and proactive well-nigh your decisions is e'er a wise move.

Source: https://livelyme.com/blog/hsa-contribution-limits-mid-year-changes/

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