HSA Account Fmily or Individual

[HumbleInvestor]

I am trying to open a HSA account and both my wife (Owner) and I work for the company and have HSA qualified medical ins for 2018. Can we open one family HSA account or should it be separate? We are funding it through our company cafeteria plan. If it is a family account, can one of us fund it fully?

I have seen HSA bank mentioned multiple times for opening HSA accounts but most of those posts are few years old. Is it still the better place to open one? What do you think of competitors like Lively and Select Account? I was just comparing them on the hsasearch website and they seem to have better reviews than HSA bank. Appreciate your input.

Thanks

HI

[CordMcNally]

Are you guys on the same insurance plan or are your insurance plans separate?

 

I have Select Account and I don't have any complaints. It's got a Vanguard S&P 500 fund that I put everything into.

[spiritrider]

Something is rattling around in the back of my head. Depending on the business entity, the owner can not participate in a Section 125 plan. However, a spouse can and can have a family plan covering the owner. Then again maybe this is for Section 105 plans. You really need to check with whoever is administering your cafeteria plan for the correct answer.

Under the rules for married people, if both of you are HSA eligible individuals, you can divide the HSA family plan contribution limit between the two of you anyway you both agree to. However, it would be better for you to make the full contribution by payroll deduction. This would allow the contributions to be both pre-tax and pre-FICA.

[HumbleInvestor]

CordMcNally wrote:

Are you guys on the same insurance plan or are your insurance plans separate?

 

I have Select Account and I don’t have any complaints. It’s got a Vanguard S&P 500 fund that I put everything into.

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We are on the same med ins plan but for now each of us are different subscribers.

[Hank]

Your salary (and your spouse's) will determine who should make the HSA contribution.

The social security maximum taxable income is $128,400 in 2018.  If you're making $130,400 or more on your W-2, then you'll only save on the Medicare tax, not the social security tax.

If one of you is making $128,400 per year and the other is making $70,000 per year, then the higher earner should make the full family contribution of $6900 for 2018.  This assumes that the higher earner is past the second social security bend point and will get only 15 cents back on every marginal dollar of social security taxed income.

[HumbleInvestor]

spiritrider wrote:

Something is rattling around in the back of my head. Depending on the business entity, the owner can not participate in a Section 125 plan. However, a spouse can and can have a family plan covering the owner. Then again maybe this is for Section 105 plans. You really need to check with whoever is administering your cafeteria plan for the correct answer.

Under the rules for married people, if both of you are HSA eligible individuals, you can divide the HSA family plan contribution limit between the two of you anyway you both agree to. However, it would be better for you to make the full contribution by payroll deduction. This would allow the contributions to be both pre-tax and pre-FICA.

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Hank - Thank you Hank for the clarification. My wife is a higher earner and I pay myself just enough to get 401k individual contribution.

SpiritRider - I am the administrator for our company Section 125 plan. It is an LLC S-Corp with my wife as the owner. We have few staff including myself and we are trying to make the full contribution by payroll deduction. For 2018 My wife will make $275k on W2 and I will make around $25-30K depending on if I make the full HSA contribution or not.

[Hank]

Quick correction on a math error.  That should be $128,400 in salary (maximum subject to social security taxes) plus $6900 would put you at the point where you only get the 1.45% Medicare tax deduction.

 

(I got confused from a similar math exercise I did a little while back for a $2000 annual flex savings account contribution.)    :?

[spiritrider]

HumbleInvestor: You may be the nominal administrator of the Section 125 plan, but you engaged some third party for the actual plan. You need to verify my understanding with them about Section 125 plans and S-Corp > 2% shareholder-employees and their employee-spouse. This is my understanding of section 125 plans. Neither your wife nor you are eligible to participate in the Section 125 plan.

Instead the S-Corp can pay for the health insurance premiums and make the HSA contributions, but they must do this directly and not through the Section 125 plan. The health insurance premiums and the HSA contributions are then included in the compensation deducted on the S-Corp's Form 1120s Line 7 and reported on the individual's W-2 Box 1 Wages, but not Box 3 Medicare Wages and Box 5 Social Security Wages.

Then the health insurance premiums are deducted on your personal Form 1040, line 29 Self-Employed Health Insurance deduction and Line 25, Health savings account deduction. Like suggested by Hank, the health insurance and HSA should be in your name not your wife's, if you want the HSA contributions to be exempt from the Social Security portion of FICA.

Clear as mud, right?

[Radgeek]

I am going to switch over to lively as I currently hate my choice (Bank of America HSA - fees, clunky website, limited investment options).

No fees is a big deal and $2.50/per month for investing in TD Ameritrade is very good deal especially if you carry a reasonable balance.

[HumbleInvestor]

spiritrider wrote:

HumbleInvestor: You may be the nominal administrator of the Section 125 plan, but you engaged some third party for the actual plan. You need to verify my understanding with them about Section 125 plans and S-Corp > 2% shareholder-employees and their employee-spouse. This is my understanding of section 125 plans. Neither your wife nor you are eligible to participate in the Section 125 plan.

Instead the S-Corp can pay for the health insurance premiums and make the HSA contributions, but they must do this directly and not through the Section 125 plan. The health insurance premiums and the HSA contributions are then included in the compensation deducted on the S-Corp’s Form 1120s Line 7 and reported on the individual’s W-2 Box 1 Wages, but not Box 3 Medicare Wages and Box 5 Social Security Wages.

Then the health insurance premiums are deducted on your personal Form 1040, line 29 Self-Employed Health Insurance deduction and Line 25, Health savings account deduction. Like suggested by Hank, the health insurance and HSA should be in your name not your wife’s, if you want the HSA contributions to be exempt from the Social Security portion of FICA.

Clear as mud, right?

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@spiritrider Earlier this year when I was looking to setup up the HSA account, I was told by a Select Account Rep that we are not eligible for setting up the HSA account and I dropped it at that point. Now reading your comment again, I was not clear on the distinctions and may not have conveyed to the HSA account custodian reps.

What is the distinction between sending contributions directly vs sending it through section 125 plan? Since as owner the S-corp medical ins premium contribution are recorded as 2% shareholder contrib on my wife's paycheck. Where does the HSA contribution get recorded? In my paycheck? I think  I am confused with the actual logistics.

Thanks

Hi

[spiritrider]

It depends on who is the named insured and if an S-Corp 2% shareholder-employee's spouse can participate in a Section 125 plan. Did you determine this from your plan provider.

If the answer is that the spouse can participate in the Section 125 plan, the spouse like any other employee would enroll in an HSA qualifying family plan HDHP. The employee share of those HDHP premiums would be deducted pre-tax/pre-FICA from their paycheck. Only the spouse enrolled in the HDHP can make pre-tax/pre-FICA HSA contributions by payroll deduction

If the answer is that the spouse can NOT participate in the Section 125 plan, I explained in my prior post the process for a 2% shareholder-employee to effectively pay for health insurance premiums and HSA contributions pre-tax/pre-FICA.

Since you do not understand this process, I highly recommend you use the services of a CPA. It is very easy to get wrong, especially the W-2 filing. Some payroll systems do not directly handle the proper W-2 of 2% shareholder-employees.