HSA in year of medicare enrollment for TP (MFJ)

[Treasur2]

My understanding is that post 55, both TP and SP under a "family plan", are entitled to $1,000 catch-up contribution. If one sp fully ($ 7,000 + $1,000 (catchup) = $ 8,000). funds HSA.
Second SP can fund $1,000 catch-up, as long as its in a separate HSA.

Therefore the real-world client calculation below.

TP and SP....MFJ

TP=Age 65.. (enrolled medicare (birth month - November/19),
SP age 62.

TP still working. Both on TP HDHP.

SP has funded $8k at fidelity. TP funded $345 via EP contribution in cafeteria plan (W=$345 on W2, box 12), before realizing medicare rule.

My calc is...
TP entitled to 10 months contribution, plus $1,000 catch-up.
SP entitled to 12 months contribution, iplus $1,000 catch-up.

Total can't be higher than $9,000 ($8000 SP funded one hsa/account (@ fidelity) HSA),
I believe, TP should fund an additional $655 in Fidelity HSA.

The total would be...

SP = $8,000 Fidelity
TP = $345 via employer contribuion cafeteria plan.
TP = $655 via new (Fidelity) HSA.
Total = $ 9,000

I am aware there are numerous other ways to accomplish the $9,000, but that's the goal. As long as .....two....accounts are utilized. One can not be over $8,000.

Your comments/analysis sought.

[rbynaker]

Spend some time with Pub 969 (unfortunately not updated yet for 2019):

https://www.irs.gov/pub/irs-pdf/p969.pdf

You're going to have to prorate the contribution limit based on the partial year coverage. I'm not exactly sure how that works in this case, but just gleaning info from the examples:

1) TP will be prorated, including the $1,000 age kicker. See page 6 example under "Enrolled in Medicare".

2) SP will have two months of self-only coverage so her limit will also be reduced (but not as severely as TP). I'm thinking ( $8K x 10 + $4.5K x 2 ) / 12

3) Not quite sure how the overall limit applies and it's not outlined that well in the Pub.

Hopefully this gets you moving along some, sorry I can't quite get you all the way to the destination.

Rick

[TaxGuyBill]

1) TP will be prorated, including the $1,000 age kicker. See page 6 example under "Enrolled in Medicare".

2) SP will have two months of self-only coverage so her limit will also be reduced (but not as severely as TP). I'm thinking ( $8K x 10 + $4.5K x 2 ) / 12

1) As far as I can tell, the $1000 is NOT prorated.

2) They still probably will have "family" coverage (to cover the costs that Medicare does not cover). That still allows the non-Medicare spouse to contribute the "family" amount (even though the Medicare spouse does not qualify for those months).



Treasur2 - At first glance, those calculations looks accurate. HOWEVER, are you accounting for 6 month retroactive Medicare?

[Lion]

Can both have "family" contributions? If both want the $1,000 catch-up, don't they have to each have their own plan, and it would be Single? Not an HSA expert, but did get into it when a spouse had a family plan but her hubby was the only one eligible for catch-up; researched and spouse could not use catch-up on HER family plan until SHE met the age requirement -- but this is not your situation. Just makes me think about your situation where it sounds like your're talking about TWO family plans... I apologize if I read that wrong.

[rbynaker]

1) As far as I can tell, the $1000 is NOT prorated.

I believe it is prorated because the TP ceases to be an eligible individual. See IRC 223:

https://www.law.cornell.edu/uscode/text/26/223

223(b)(3)(A):

"In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the additional contribution amount."

Translation: The $1,000 additional contribution just modifies the monthly limitation amount in 223(b)(2):

"The monthly limitation for any month is 1⁄12 of—
(A)in the case of an eligible individual who has self-only coverage under a high deductible health plan as of the first day of such month, [indexed to 2019: $3,500 + $1,000 additional].
(B)in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, [indexed to 2019: $7,000 + $1,000 additional]."

So I'm still thinking the TP limit is $6,666. ($8000 x 1/12 = $666.67/mo. x 10 months = $6,666.67)

2) They still probably will have "family" coverage (to cover the costs that Medicare does not cover). That still allows the non-Medicare spouse to contribute the "family" amount (even though the Medicare spouse does not qualify for those months).

Interesting. I've always assumed that coverage that only covers one eligible individual would be considered self-only coverage. But that's not defined clearly in the code. All we get from 223(c)(4) is:

"The term 'family coverage' means any coverage other than self-only coverage."

So it may very well be that the "coverage" is determined independently of the "eligible individual" definition. If correct, that would put the SP limit back up to $8,000.

That leaves us pondering how the two limits interact and how they get allocated. Pub 969, page 6 near the bottom of the first column has this unhelpful warning:

"The rules for married people apply only if both spouses are eligible individuals."

It doesn't say what rules might apply if one spouse ceases to be an eligible individual.

Are we having fun yet?

[Rapid Robert]

HOWEVER, are you accounting for 6 month retroactive Medicare?

I thought that was a choice made when signing up, not mandatory?

[TaxGuyBill]

I believe it is prorated because the TP ceases to be an eligible individual. See IRC 223:

https://www.law.cornell.edu/uscode/text/26/223

223(b)(3)(A):

"In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the additional contribution amount."

Translation: The $1,000 additional contribution just modifies the monthly limitation amount in 223(b)(2):

"The monthly limitation for any month is 1⁄12 of—
(A)in the case of an eligible individual who has self-only coverage under a high deductible health plan as of the first day of such month, [indexed to 2019: $3,500 + $1,000 additional].
(B)in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, [indexed to 2019: $7,000 + $1,000 additional]."

So I'm still thinking the TP limit is $6,666. ($8000 x 1/12 = $666.67/mo. x 10 months = $6,666.67)

I agree, the catch-up contribution does need to be prorated by month.

Interesting. I've always assumed that coverage that only covers one eligible individual would be considered self-only coverage. But that's not defined clearly in the code. All we get from 223(c)(4) is:

"The term 'family coverage' means any coverage other than self-only coverage."

So it may very well be that the "coverage" is determined independently of the "eligible individual" definition. If correct, that would put the SP limit back up to $8,000.

That leaves us pondering how the two limits interact and how they get allocated. Pub 969, page 6 near the bottom of the first column has this unhelpful warning:

"The rules for married people apply only if both spouses are eligible individuals."

It doesn't say what rules might apply if one spouse ceases to be an eligible individual.

Are we having fun yet?

Notice 2008-59:

Q-16. How do the maximum annual HSA contribution limits apply to an eligible individual with family HDHP coverage for the entire year if the family HDHP covers spouses or dependent children who also have coverage by a non-HDHP, Medicare, or Medicaid?

A-16. The eligible individual may contribute the § 223(b)(2)(B) statutory maximum for family coverage. Other coverage of dependent children or spouses does not affect the individual’s contribution limit, except that if the spouse is not an otherwise eligible individual, no part of the HSA contribution can be allocated to the spouse.

https://www.irs.gov/irb/2008-29_IRB#NOT-2008-59

I thought that was a choice made when signing up, not mandatory?

I Googled it, and this is my interpretation: If you sign up AFTER your 65th birthday, it is retroactive back to your 65th birthday, up to 6 months. It seems mandatory.

But if you sign up at for your 65th birthday, nothing is retroactive so it won't affect your HSA contribution.