Health Savings Accounts: Small Change In 2018 Could Cause Problems

Old_Joe

An article on NPR notes that a small change in the maximum amount individuals with family coverage could contribute to their health savings accounts could create problems.

From the article:

"The Internal Revenue Service announced last month that the maximum amount individuals with family coverage could contribute to their health savings accounts would actually be reduced slightly from their previously announced limit for 2018. The maximum contribution for people with individual coverage in 2018 remains $3,450.

The family coverage contribution reduction of $50 — from $6,900 to $6,850 – isn't much of a change. It happened because the federal government altered the way it calculates inflation adjustments to the contribution limits.

But ignoring the new limit could create headaches for people who have already made the maximum HSA contribution for the year based on the $6,900 figure, says Roy Ramthun, president of HSA Consulting Services. If you don't ask the bank that handles your HSA to return the $50 plus any earnings that have accrued before the next tax season, your taxable income will be off by that amount, plus you'll be on the hook for a 6 percent penalty for exceeding the maximum contribution allowed."

Derf

6% of $50 or 6% of $6900 ? if it's the first , do you think the GOV. would send a bill for $3 & change ?
Derf

bee

I believe this reduction may have been impacted by the new method of how the government will now calculate inflation using "Chained CPI" as part of the new tax laws.. This will provide a cost savings to the government for any inflation adjusted benefits payments the government pays out (such as SSI & military pensions) as well as a mechanism to lower an individual tax payer's tax deductions (IRAs & HSAs).

...welcome to the chain gang.

Article:
irs-lowers-2018-family-hsa-contribution-limit

Bigger Picture of Chained CPI on your tax bill:
chained-cpi-shaves-tax-breaks-will-your-retired-pay-be-next

MikeM

Also on the HSA which affects me because I turn 65 in less than a year, if you are taking Medicare at 65, you cannot contribute to an HSA less than 6 months prior to your 65th birthday. This is not new, just sharing for anyone who was unaware. For me, I only have until July this year to fund my account for 2018.

msf

Six months does come into play, but I believe it's more complicated.

When you sign up for Medicare Part A (the part that most people don't have to pay for), you're automatically enrolled for up to six months prior to your registration. But that usually only goes as far back as your 65th birthday. (Different rules for disability enrollment.)

Regardless of when you register, you're not (usually) going to be enrolled before you're 65. So you're free to contribute to your HSA until the month in which you turn 65.

See, e.g. https://www.medicareinteractive.org/get-answers/coordinating-medicare-with-other-types-of-insurance/job-based-insurance-and-medicare/health-savings-accounts-hsas-and-medicare

Finally, if you decide to delay enrolling in Medicare, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility.

People may delay enrolling in Medicare if they're still working and covered by their employer's HDHP plan. That's the main situation where people have to be careful about retroactive Part A coverage.