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Why You Should Make HSA Contributions For 2019 (Even in 2020)

Why You Should Make HSA Contributions For 2019 (Even in 2020)

 

Like an IRA, you may have heard that you can still make contributions toward your HSA for the 2019 tax year, even in 2020. But why worry about 2019 now that you can make contributions toward 2020? 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 2020, individuals with self-only health insurance coverage can contribute up to $3,550 and individuals with family health insurance coverage can contribute up to $7,100. (For 2019, contribution limits were $3,500/self-only and $7,000/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, 2019 – April 15, 2020 to make contributions toward tax year 2019. (The specific date is set by the IRS each year but is always in mid-April.)

Contributing for 2019 & Why it Matters

So, why contribute toward 2019 instead of starting on contributions for 2020?

Eligibility

This especially benefits individuals who were HSA eligible in 2019 but are no longer eligible in 2020. 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 2020, and therefore can now only contribute half as much as 2019.

If any of these situations apply to you, you can still make contributions toward 2019 based on your eligibility for 2019. So, if you were eligible for the full 12 months of 2019, 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 2019, but now have self-only coverage in 2020, you can max out your 2019 family contribution ($7,000), before you’re limited to the $3,550 self-only limit for 2020. Just remember, your HSA contribution limit is pro-rated based on your eligibility throughout the year. If you’re HSA-eligible for 6 months in the year, you would divide your applicable 2019 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 2019 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 2019.

I’m sold. How do I do it?

For HealthSavings accountholders, it’s easy to contribute toward 2019. Here’s how:

  • • Log into your online portal
  • • Click Schedule Contribution and complete the required information
  • • Under Tax Year, select Contribute to 2019 from the dropdown menu
  • • Click Submit

And employers! We haven’t forgotten about you. Here’s how to make a 2019 contribution to your employees:

  • • Log into your online 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 2019, you must add 2019 to each cell under the Fiscal Year column (Column F)
  • • Select Process Payroll Contribution File from the dropdown menu, choose your desired Account Transfer Method, and click Submit

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

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The IRS has extended the tax deadline from April 15th to July 15th. Individuals may continue to make 2019 HSA contributions until 11:59 p.m. EST on July 15, 2020. Read more Covid-19 updates >>