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Why You Should Make HSA Contributions For 2020 (Even in 2021)

Why You Should Make HSA Contributions For 2020 (Even in 2021)

Like an IRA, you may have heard that you can still make contributions toward your HSA for the 2020 tax year, even in 2021. But why worry about 2020 now that you can make contributions toward 2021? We’re breaking down how it works, why it matters, and how to do it.

HSA Contribution Basics

Health savings accounts (HSAs) are regulated by the IRS. All HSAs, regardless of HSA provider, follow certain rules — like annual contribution limits and contribution deadlines.

Contribution limits change for each calendar year and have historically increased gradually from year to year. How much you can contribute is based on your health insurance coverage. For 2021, individuals with self-only health insurance coverage can contribute up to $3,600 and individuals with family health insurance coverage can contribute up to $7,200. (For 2020, contribution limits were $3,550/self-only and $7,100/family.) Self-only coverage means that you’re the only person covered under your plan. Family coverage includes you plus one or multiple dependents (e.g. you and a spouse, you and a child, you and a spouse and child/children).

Contribution deadlines, however, are based on tax year. That means HSA owners have from January 1, 2020 – April 15, 2021 to make contributions toward tax year 2020.

Contributing for 2020 & Why it Matters

So, why contribute toward 2020 instead of starting on contributions for 2021?

Eligibility

This especially benefits individuals who were HSA eligible in 2020 but are no longer eligible in 2021. For example, maybe you changed health insurance plans or went on your spouse’s non-HSA-eligible health insurance starting in January. Or, perhaps you’re still HSA-eligible, but switched from family coverage to self-only coverage for 2021, and therefore can now only contribute half as much as 2020.

If any of these situations apply to you, you can still make contributions toward 2020 based on your eligibility for 2020. So, if you were eligible for the full 12 months of 2020, but only contributed half of the contribution limit, you can now go back and contribute the other half, even if you’re no longer HSA-eligible. Similarly, if you’re still HSA-eligible, had family coverage in 2020, but now have self-only coverage in 2021, you can max out your 2020 family contribution ($7,100), before you’re limited to the $3,600 self-only limit for 2021. Just remember, your HSA contribution limit is prorated based on your eligibility throughout the year. If you’re HSA-eligible for 6 months in the year, you would divide your applicable 2020 contribution limit by 12, then multiply by 6 to find your prorated contribution limit.

Add Time and Save Money

Put simply, being able to contribute to the prior year gives you more time to maximize your HSA. Maybe you got a bonus in December or some Christmas money you can use to boost your 2020 contributions. It might not be the most exciting way to spend your Christmas check from Aunt Susie, but we don’t think you’ll regret it. If you’re looking at your HSA as a tool in your comprehensive retirement strategy (which we strongly recommend!), time is your biggest strength. Even the smallest addition can make a world of difference in 10, 20, or even 30 years from now.

Plus, one of the biggest perks of an HSA is its triple tax benefit — contributions are tax-free, withdrawals are tax-free, and interest grows tax-free — making it the most tax-advantaged savings account on the market. By contributing toward a prior tax year, you can maximize the tax benefit for 2020.

I’m sold. How do I do it?

For HealthSavings accountholders, it’s easy to contribute toward 2020. Here’s how:

• First, log in to your HealthSavings portal

• Click Schedule Contribution and complete the required information

• Under Tax Year, select Contribute to 2020 from the drop-down menu

• Click Submit

And employers! We haven’t forgotten about you. Here’s how to make a 2020 contribution to your employees:

• First, log in to your HealthSavings portal

• Click Schedule Contribution, then Contribution File Upload on the right-hand side (Note: This is the only available contribution method when contributing to a previous calendar year)

• Click Download Template and enter the relevant information for the employees you wish to contribute to

• If you would like to contribute toward 2020, you must add 2020 to each cell under the Fiscal Year column (Column F)

• Select Process Payroll Contribution File from the drop-down menu, choose your desired Account Transfer Method, and click Submit

If you have additional questions, give us a call at (888) 354-0697 or check out the details around HSA contributions.

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