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Opening HSA

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  • Opening HSA

    In 2018 I will opportunity to sign up for "Qualified HDHP" HSA.

    However my employer(Hospital) refuses to deduct contribution directly from paycheck(pre- tax) unless I will use an employer's HSA (the Bancorp HSA).

    I am planing to use HSA Bank but HR people states that I will have to contribute post tax $$ and then deduct it at the end of year while doing taxes.

    Is it a common practice?

    Is it legal?

  • #2
    Yes, it is very common practice for an employer to route both employee payroll and employer HSA contributions to their HSA custodian of choice. It is very rare for an employer to allow each employee to select their own HSA custodian for HSA contributions by payroll deduction.

    It is absolutely legal. The employer doesn't even have to allow any HSA contributions by payroll deduction. In fact you will find that scenario far more often than you will find an employer allowing HSA contributions to the HSA custodian of the employee's choice.

    There is a third option that HR didn't tell you about. Make your HSA contributions by payroll deduction to the employer's custodian. Then like with an IRA, you can only do one rollover per 12 month period of the balance to the HSA custodian of your choice. This allows your contributions to still be income and FICA tax exempt and eventually get to the custodian of your choice. You can do as many trustee -> trustee transfers as you want, but almost all custodians charge a fee (typically $25) for each such transfer.

    Maybe you find that your employer's HSA custodian is good enough.