Health savings account

[KJ Judd]

Is the amount you can put in a health savings account during a year limited by when you open the health savings account?

Client got a high deductible plan on March 1. So at max he can contribute is 10/12 of his $5,000 deductible.

Despite repeated urging by me & numerous discussions, he has yet to open his HSA for the year & his son needs major surgery next week. I told him to get that account opened since it needs to be opened before the expenses are incurred to be reimburseable. But as I was talking to him, I wondered if the amount he can contribute is also limited by when he opens the HSA. I didn't see anything in the IRS notices. So can he contribute $4,166 (10/12 x $5,000)?

[veritas]

Tax Relief and Health Care Act

That would be correct as to the limitation for months, but that limitation has been removed under the last tax act. I'm going to guess that this will be effective starting in 2007.

[BOB W]

Hsa

I've done some recent reading on HSA's but don't remember the exact $. Contributions do get prorated for short years. The contributions are not the deductible of the medical plan. There is a single and family limit. There is a 44 page document on the web that I was reading. I'll get back to you with that URL and post it in this reply.

http://www.treasury.gov/offices/public-affairs/hsa/pdf/hsa-basics.pdf

[Unregistered]

Per QF 4-16

Contributions are reduced by:
1/12th for each full month an indiviudal is not covered under an HDHP
amounts contributed ot an MSA
employer contribtions to the HSA that were excluded from income
if married, spouse's coverage may result in lower or zero contribution limit

[Unregistered]

Tax Book 13-1

"Annual contribution is limited to the lesser of the health pland annual deductible or: Self only under 55 years of age is $2700. Therefore his contribution would be 10/12 of $2700=$2250

[Jesse]

Is the amount you can put in a health savings account during a year limited by when you open the health savings account?

Client got a high deductible plan on March 1. So at max he can contribute is 10/12 of his $5,000 deductible.

Despite repeated urging by me & numerous discussions, he has yet to open his HSA for the year & his son needs major surgery next week. I told him to get that account opened since it needs to be opened before the expenses are incurred to be reimburseable. But as I was talking to him, I wondered if the amount he can contribute is also limited by when he opens the HSA. I didn't see anything in the IRS notices. So can he contribute $4,166 (10/12 x $5,000)?

It is prorated and the 2006 maximum contribution is the lesser of the plan deductible or for single coverage $2,700, family coverage $5,450.

I don't think the HSA needs to be opened before the expenses are incurred to be reimburseable, but the the High Deductible Health Plan must be in effect for the medical expenses to be qualified for reimbusement.

[KJ Judd]

IRS Notice 2004-50

The health savings account DOES need to be opened before the expenses are incurred.

See IRS Notice 2004-50, Q-39 "An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established."

If I could figure out how to underline, I'd underline the last part of that sentence.

[Jesse]

Sorry,

I hesitate in posting here because so many people on this board have so much more knowledge than I, but I read it often because I learn so much. So I apologize as I was "thinking out loud". When a person posts on these boards it's sometimes taken out of context as we read the message but interpret the tone.

For example, all Caps can be considered as yelling, so I did catch that in your first sentence and I'm not sure if the last sentence is "said" with a smile, or you wanted to underline to yell at me again.

Sometimes we learn by our mistakes, so I thank you for the lesson and the added tax knowledge.

[KJ Judd]

Jesse -

I didn't mean to offend. I just wanted to underline to make it easier to see in the mass of words. I've never known the IRS to use three words when thirty would do.

And I definitely agree. I love this board for the insight it provides to me a solo practitioner.