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  • Open enrollment (HSA/FSA questions)

    Open enrollment tax-related HSA/FSA question.  The amounts here are not trivial (1-2K a year), so I appreciate your help & input.  I will ask similar questions to our benefits office, but it is always nice to get a "second opinion", even if crowd-sourced.  FYI -- I understand the basic tax treatment of the accounts, it's more about the arrangements, ability to switch & what's permissible.

     

    Background:  for this year, my wife & I both have individual plans.  I have a low-cost, high deductible plan with FSA (no HSA option allowed), my wife had a high deductible with HSA.  Premiums for individual high deductible plans were low & made more sense than buying a family plan.  Goal was to squirrel away all HSA funds, and use FSA for any expenses.  We were banking on being healthy, getting away with low monthly premiums, and keeping 1 of 2 HSA accounts with max individual contribution.

     

    It didn't exactly work out this way (my wife got sick), but w/o hindsight, I still would have made the same choice.

     

    This coming year is a bit more complicated -- we are planning to start a family, so we (potentially) have a qualifying event, but also potentially (more likely than not) not insignificant medical expenses, such as physical therapy & fertility workup/treatments.

     

    So down to specifics:

    (1)  With a married couple, can you have one person with FSA and another person with HSA individual plans?  Are we then obligated to file taxes as married, but filing separately, or are we OK with married joint file?

     

    (2)  I understand one cannot be covered by FSA and HSA at the same time.  Does that mean one cannot have FSA and HSA in the same year, even if switching plans due to a qualifying life event (birth of child, change in employment, etc)?

     

    (3)  Contributions to HSA -- I understand that as long as one is covered by HSA at the end of the calendar year, one can contribute up to the max in the HSA (for 2018 3450$ individual, or 6900$ family).

     

    So referencing question #2, if one has an individual high deductible plan with an FSA, does that mean one is forbidden from switching into a family-coverage HSA, or just that if one switches into family coverage HSA, one cannot contribute to the family max, but only to individual max?

     

    (4)  Conversely, if one has a HSA high deductible individual plan, but switches into family non-high deductible (non-HSA) plan and is on that plan at the end of the calendar year mean he/she cannot contribute to HSA?

     

    Sorry to make this so convoluted.  Basically, our options are:  (a) keep status quo with two individual high deductible plans (one HSA and one FSA), but risk incurring high medical costs (b) family plan high higher monthly deductibles, that reduces risk of high medical costs, but also no tax-savings if we are healthy and wind up not using our medical coverage enough or (c) some combination thereof, where we can have our cake and eat it too, with switch due to qualified life event.

  • #2
    1 & 2. Don't know, but I can't ever take the risk of losing $ in an FSA. I've yet to see a situation where FSA > HSA, at least for me/us.

    Comment


    • #3
      I do not know the answer to these questions...BUT I am in a similar situation as you for this upcoming year and I can tell you what I plan on doing.  My wife and I are on her employers plan and are going to stay on it for next year (we're currently on their HMO by accident, but we're switching to the high deductible plan).  They do not offer an HSA either.  We are also planning on starting a family (fingers crossed).  I plan on contributing the full family amount to my old HSA that I used to contribute to through my employer.  I don't think opening an FSA would be helpful.  With an HSA the pre-tax dollars for people in our income level is super valuable (triple tax advantaged account, it's not taxed going in, it's not taxed while growing in investments, and it's not taxed coming out as long as it's for medical expenses).  So, I think even with a potential baby coming up, it's still worthwhile to get money in there.  You can always withdraw money from it as needed with no penalty.  The only risk is that if the stock market drops it will decrease in size.  It will lower your taxes, which may end up being even more valuable next year if the GOP tax reform passes.

      Comment


      • #4
        @hightower:  my understanding is if you are not actively enrolled in a high deductible plan, you CANNOT and should not contribute to HSA.  So yeah, I have old HSA, but because I am in a plan that does not offer HSA (only FSA), I cannot contribute to my old HSA.

         

        So for your situation, if you were in HMO that is not high deductible this year, unless you switch to a high deductible plan before the end of the year, you cannot contribute to HSA.  If you do & get audited, IRS will hit you with penalties and potentially force you to withdraw the contributed amount from the HSA (??)  I am thinking about this correctly?

        Comment


        • #5




          I can't see any other way replying other than interspersing my comments. It is going to be long and out of necessity redundant. So I am going to delete some text.

          Background:  I have a low-cost, high deductible plan with FSA (no HSA option allowed), my wife had a high deductible with HSA.

          If your FSA was a general purpose FSA it almost certainly provided coverage for your wife. Regardless if it was used to reimburse any of her expenses or not, it was "other coverage" that made her ineligible for an HSA. This means all HSA contributions were excess contributions and all withdrawals were non-qualified withdrawals. You have a mess on your hands

          (1)  With a married couple, can you have one person with FSA and another person with HSA individual plans?  Are we then obligated to file taxes as married, but filing separately, or are we OK with married joint file?

          As stated above, FSA plans universally cover spouses. One spouse with a FSA will disqualify the other spouse from an HSA.

          Self-only or family health insurance plans do not change what filing status is required. I suppose there could be rare unique situations where it might be better one way or the other based on AGI issues, but that is beyond the scope of this thread.

          (2)  I understand one cannot be covered by FSA and HSA at the same time.  Does that mean one cannot have FSA and HSA in the same year, even if switching plans due to a qualifying life event (birth of child, change in employment, etc)?

          In addition to there being a QLE, there are consistency rules. The change in election must be consistent with the QLE. In many cases an FSA election change is not allowed for specific QLEs. In the majority of the cases that do allow an FSA change it is limited to increasing or decreasing the election amount. Generally, an FSA election is only revocable on separation. I believe that in a few cases you can add an FSA mid-year. Don't ask me the specifics because it is a veritable minefield and I have no clue. So HSA -> FSA maybe. FSA -> HSA unlikely.

          (3)  Contributions to HSA — I understand that as long as one is covered by HSA at the end of the calendar year, one can contribute up to the max in the HSA (for 2018 3450$ individual, or 6900$ family).

          That is true, but the only time I have seen this myself is when the company changed insurance carriers midyear. As I stated above the change in election must be consistent with the QLE. For example, get married -> change in coverage from self-only to family coverage + increase in FSA election. Same thing for birth of a child.

          So referencing question #2, if one has an individual high deductible plan with an FSA, does that mean one is forbidden from switching into a family-coverage HSA, or just that if one switches into family coverage HSA, one cannot contribute to the family max, but only to individual max?

          Check with HR, but I think the answer is no.

          (4)  Conversely, if one has a HSA high deductible individual plan, but switches into family non-high deductible (non-HSA) plan and is on that plan at the end of the calendar year mean he/she cannot contribute to HSA?

          Again check with HR, but I think the answer is no.

          Sorry to make this so convoluted.  Basically, our options are:  (a) keep status quo with two individual high deductible plans (one HSA and one FSA), but risk incurring high medical costs (b) family plan high higher monthly deductibles, that reduces risk of high medical costs, but also no tax-savings if we are healthy and wind up not using our medical coverage enough or (c) some combination thereof, where we can have our cake and eat it too, with switch due to qualified life event.

          Since the status quo is no bueno, you need to change something and clean up the mess you already have.
          Click to expand...


           

          Comment


          • #6
            I can’t add much to your questions. I’m not a tax expert, but I’m surprised you can pay for your wife’s care with an FSA while she is contributing to an HSA. Also, I note a few pretty important points you didn’t cover, and just want to point them out in case you haven’t considered them.

            What is the coverage and anticipated costs (deductible, coinsurance, annual and lifetime max, and annual out of pocket max) of fertility assessment and treatments under each plan? I’m guessing they’ll approach the OOPM for whomever will be carrying the pregnancy, especially if delivery occurs the same year. As I’m sure you’re aware, fertility coverage varies widely and if you haven’t accounted for this you should estimate your costs as closely as possible and budget accordingly.

            The same analysis for the remainder of your anticipated medical needs may help you decide. Personally, I meet my OOPM by the second week of January each year, and have never had an FSA “beat out” a HSA/HDHP cost-wise, nevermind the long term investing benefit of an HSA.

            Budgeting for as many of these out of pocket costs in your monthly cash flow will help you keep as much money in your HSA as possible for investing.

            Comment


            • #7
              Here is a good summary:

              https://thefinancebuff.com/hsa-and-fsa-same-year.html

              You can't actually have a general FSA and an HSA at the same time, even if one is yours and other belongs to your wife.  However this article provides a nice overview of when you can have both.

               
              An alt-brown look at medicine, money, faith, & family
              www.RogueDadMD.com

              Comment


              • #8
                Actually I am going to shut down your opening line: 1-2k/year is trivial. Go with whatever gives you the best coverage and lowest deductible this year since you are planning on starting a family. You will have lots of unexpected medical expenses. One full IVF cycle (if that is what you are implying) is around 20k. So don't worry about the possibility of saving 1 or 2k if that comes with the risk of higher out of pocket expenses. You will have lots of out of pocket expenses. Also, as you might already know, most insurance companies do not cover IVF costs.

                Comment


                • #9
                  Thanks guys.  I got to the same finance buff article as @RogueDad mentioned and yes @DreamGiver in a bigger scheme of things, it's actually not a big deal and not that bad.  Spirit rider kinda scared me with his harsh comments.  Anyway, working it out is easy enough, we will switch over to a high premium family plan at this year's enrollment, and withdraw excess contributions to the HSA.  Then if we don't wind up using the high premium/low deductible plan as much as we thought, we will switch back to HSA when 2018 open enrollment rolls around.  Easy enough.

                  Comment


                  • #10
                    Make sure you do the math before leaving the HDHP.  Our HDHP is heavily subsidized and our deductible/OOP max low enough that it's financially a winner for us to do the HDHP even if we hit the OOP max every year.

                    The difference in premiums between the fanciest plan at my place and the HDHP premium is MORE than the HDHP OOP max.

                    http://www.roguedadmd.com/2017/06/high-on-high-deductibles/

                    I wrote this a few months back.

                    We had a baby in 2015 on the HDHP, and while we hit our OOP max, the math still worked out in favor of being on the HDHP because we would've paid more in premiums alone for a fancier plan that "covered" the childbirth completely.  This isn't even including the tax/growth benefits of money in the HSA or the $800 my employer puts into the HSA for me.

                     
                    An alt-brown look at medicine, money, faith, & family
                    www.RogueDadMD.com

                    Comment


                    • #11
                      It wasn't my intention to be harsh, although I will admit to being intentionally direct to identify the problem. In my opinion, it is the employers who are guilty of gross negligence for not proactively raising these issues during open enrollment.

                      If they have on-line enrollment, the system should throw up a warning to the employee if they are married, select an individual health insurance plan and try to enroll in a general purpose FSA. If it is a manual form process, there should be clear warnings around the selection of general purpose FSAs.

                      It should not be the employee's responsibility to know the intricacies of FSA/HSA interrelationships. This is compounded by the fact that it is the other spouse's FSA enrollment that jeopardizes the HSA eligibility of their spouse. Would your average employee ever think that?

                      Comment


                      • #12




                        @hightower:  my understanding is if you are not actively enrolled in a high deductible plan, you CANNOT and should not contribute to HSA.  So yeah, I have old HSA, but because I am in a plan that does not offer HSA (only FSA), I cannot contribute to my old HSA.

                         

                        So for your situation, if you were in HMO that is not high deductible this year, unless you switch to a high deductible plan before the end of the year, you cannot contribute to HSA.  If you do & get audited, IRS will hit you with penalties and potentially force you to withdraw the contributed amount from the HSA (??)  I am thinking about this correctly?
                        Click to expand...


                        Correct.  As long as I'm enrolled in a NON-high deductible plan, I can not contribute to an HSA.  However, when we switch to the new high deductible plan in January, I will start contributing to my HSA at that time (since my wife's insurance does not offer an HSA).

                        Comment


                        • #13
                          OK, one last question:  if you leave HSA-eligible HDHP for non-HSA eligible HMO plan during open enrollment (November), with enrollment taking effect before Dec 31st, do you have to withdraw all HSA $ contributed that year?

                          My guess is "yes", but online authoritative online articles are lacking.  My guess is based on what would make sense as a corollary to you can contribute the max to HSA if you switch from HMO to HSA before Dec 31st on the given year... but then again, laws don't often make sense.

                          Comment


                          • #14
                            If you are an HSA eligible individual on the 1st day of a month you are eligible for that entire month.

                            Normally, your contribution limit is prorated by the number of months of eligibility.

                            However, if you are an HSA eligible individual on 12/1 and you make contributions > your prorated limit you are deemed to have used the "last month rule."

                            This rule allows you to contribute up to the full year's limit even if you prorated limit is much lower.

                            However, you must remain an HSA eligible individual for all of the following year or you will fail the "testing period" and subject to a 10% excise tax on the amount of contributions > your prorated limit.

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