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HSA Catch-Up Contributions

3 min read

30 sec brief

At one time Congress was worried about your retirement. No, really. More specifically, baby boomers. Congress feared many of the millions of baby boomers had neglected to save enough for retirement.

At one time Congress was worried about your retirement. No, really. More specifically, baby boomers. Congress feared many of the millions of baby boomers had neglected to save enough for retirement.

Catch-Up Contributions

So, in 2001, Congress introduced tax legislation to help boomers and future generations catch up on retirement savings through HSA contributions. The Economic Growth and Tax Relief Reconciliation Act of 2001 became effective January 1, 2002. It applied to retirement plans, such as a 401k or IRA, and allows the following.

  • Additional annual contribution to qualified retirement plan for eligible individuals 50 and older
  • The catch-up contributions are in addition to the year’s standard limit
  • IRS sets the maximum catch-up contribution amount each year

Did you know catch-up contributions also apply to Health Savings Accounts (HSAs)? However, there are some differences. The following graphic summarizes 3 Rules to know about catch-up contributions for HSAs.

How it Works: HSA Contributions

In 2017, HSA-eligible plans have a maximum annual contribution limit of $3,400 for single coverage and $6,750 for family coverage. Let’s review a few scenarios.

Scenario #1

You are flying solo and you turn age 55 in July of 2017. Happy birthday. Your birthday present from the IRS (how often have you heard that phrase?) is your eligibility for HSA catch-up contributions.

  • You are eligible the year in which you turn age 55
  • For 2017, your standard annual contribution maximum is $3,400
  • The annual limit includes any contributions made by your employer, plus what you contribute
  • You can also make additional contributions up to $1,000 for a total of $4,400 for 2017

Scenario #2

You are still flying solo but now you turn age 65 and sign up for Medicare. You are no longer eligible to make catch-up (or any) HSA contributions. The maximum you can contribute is prorated based on when you turn 65.

For example, if you turn 65 in July, that means you have 6 months of eligibility for HSA contributions (January through June). Assuming the 12-month maximum contribution of $4,400 (2017 maximum of $3,400 + $1,000 catch-up), the following illustrates how you calculate the most you can contribute before turning 65.

  • 6 months /12 months X $4,400 = $2,200 maximum contribution

Scenario #3

What if you’re married? Both you and your spouse turn age 55 in the same year. Double party. Can you both make a $1,000 catch-up HSA contributions for a total of $2,000?

  • YES, you can both make a $1,000 catch-up contribution
  • BUT your spouse must have a separate account and put his/her contribution in that account
  • You cannot put $1,000 each into one account
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.

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