When we have children, we want to give them the world. We’ll do anything to make sure they’re set up for success so it makes sense that you’d want to open a Health Savings Account (HSA) just for them. After all, with health care costs continuing to rise and the HSA’s triple-tax advantage, opening an account is one of the best investments you can make. However, unlike other investments like 529 college savings plans, an HSA can’t be opened for any child at any time.
Who can open an HSA?
You can only open an HSA if you meet the following criteria:
- You’re enrolled in a qualifying High Deductible Health Plan (HDHP).
- The HDHP is your only insurance (so no supplemental coverage from a spouse’s employer’s plan).
- You’re not enrolled in Medicare.
- You’re under the age of 65.
- No one else can claim you as a dependent on their tax returns.
That last rule is key. In order to own an HSA, you must file your own tax returns. If you’re married, filing jointly, that counts as filing your own tax returns. So minor children can’t own their own HSA. But adult children can.
When non-dependent children can have their own HSA
For your child to own their own HSA, they must be at least 18 years old and not counted as a dependent on your tax returns. So if they’re in college, and you’re supporting them while they finish school, they’re still considered a dependent. If you’re not supporting them and you won’t or don’t count them as a dependent, then they’re eligible.
The following are two possible scenarios where your child could own an HSA:
- Your child is between the ages of 18 and 26, and is no longer your dependent but he or she is still covered under your family HDHP plan. This could be because it’s cheaper than their employer-sponsored health insurance, or maybe they’re not offered health insurance from their employer.
- Your child is over the age of 18 and is no longer your dependent. They’re covered by an HDHP either via their employer or the private market and it’s their only health insurance.
In the first scenario, you can contribute up to the annual maximum for family plans since your child is covered under your health plan. But since they’re not a dependent, you can’t use your HSA money for their qualified medical expenses. What you can do is open an HSA for them, that they own, and you can contribute to their account, also up to the annual maximum for family plans.
In the second scenario, your child would open their own HSA to which you could contribute up to the annual maximum for individual plans.
You see, anyone can contribute to your child’s HSA. You, your parents, your brothers and sisters, your child’s employer, your neighbor — whoever wants to give your child the gift of health, can deposit money into your child’s account.
What if my child is a minor or dependent?
If your child is a minor and/or still your dependent, then you can contribute to your HSA up to the annual maximum for family plans. Then you can use your savings to pay for their qualified medical expenses.
If your HSA offers a debit card, each dependent on the account can have their own card to pay for qualified medical expenses at the point of purchase.
Setting your child up for success
There are many ways to set your child up for success. One of those ways is to give your child the gift of health. If your child is a minor and still a dependent, model good health and financial responsibility by opening an HSA and contributing the maximum amount allowed for family plans. This will ensure you and your child are covered in the event of unforeseen medical expenses.
If your child is no longer a dependent, help them choose the best health insurance for them. You should consider:
- Monthly premiums.
- The ability to contribute to a savings account like an HSA or FSA.
- The medical coverage your child needs.
In many cases, it’s cheaper to add a child to your family plan than it is for them to buy an individual plan on their own.
If you find that an HDHP is the best health insurance plan for your child (whether it’s yours or a plan they buy individually), help them open an HSA. Then offer to contribute to the account.
Another way you can help your child save, is by helping to pay for qualified medical expenses for which they would otherwise use their HSA. This allows them to invest their contributions and keep them growing over the long term.
HSAs are great tools that can help you and your family maintain optimum health. But they’re not the only one. Choosing the right health insurance plan for you and your family, and helping your children to do the same when the time comes, is just as important. If your child doesn’t qualify for their own HSA right now, that doesn’t mean they won’t in the future. And when they do, you can help fund their account so they can maximize their savings.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.