2023 HSA contribution limit

[ir63]

I have individual HDHP for myself only from my employer for the entire year. (enrollment starts January 1) I am 58 and my employer contributes $850, I will contribute $4000 for 2023

My wife. 54 years old, has her own insurance thru her employer with enrollment starting in September each year. The plan wasn't HDHP, but beginning this September she will enroll in HDHP.

So, we'll have 2 separate individual HDPD plans

1.Can she contribute full $3850 minus employer contribution for 4 months in 2023 and full contribution for 2024?

[Mike9241]

if she is cover by a HDHP on 12/1/2023 she can make a full year's contribution to her HSA.  The warning is that there will be a penalty in 2024 if she drops HDHP coverage before 12/31/2024. This is dome through the use of the last month rule.

Last-month rule. If you are an eligible
individual on the first day of the last
month of your tax year (December 1 for
most taxpayers), you are considered to
be an eligible individual for the entire
year, so long as you remain an eligible
individual during the testing period as
discussed below.
Testing period. You must remain
an eligible individual during the testing
period in order to take advantage of the
last-month rule. The testing period
begins with the last month of your tax
year and ends on the last day of the
12th month following that month (for
example, December 1, 2023 –
December 31, 2024). If you fail to
remain an eligible individual during this
period, other than because of death or

becoming disabled, you will have to
include in income the total contributions
made that would not have been made
except for the last-month rule. You
include this amount in income in the
year in which you fail to be an eligible
individual. This amount is also subject to
a 10% additional tax. 

[ir63]

Can she make a full HSA contribution in 2023 and full contribution in 2024 if she keeps her plan for the entire 2024?

[Opus 17 · Accepted solution]

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@ir63 wrote:

Can she make a full HSA contribution in 2023 and full contribution in 2024 if she keeps her plan for the entire 2024?

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More or less.  

For 2023, your contribution limit is $3850 + $1000 catchup provision for over age 55, assuming you remain covered by a single HDHP for the entire year.

For 2023, if your wife is covered by a single HDHP starting on or before 12/1/23, and she remains covered by a single HDHP for all of 2024, her limit for 2023 is $3850.  If her 55th birthday is on or before 12/31/23, she also gets a $1000 catchup contribution, for a total of $4850.  If not, her limit is $3850.  

For 2024, the limits for self-only coverage are $4150, plus $1000 if over 55 on the last day of the year.  If you change plans before the end of 2024, your 2024 limit will be pro-rated.  If your spouse changes plans before the end of 2024, her 2024 limit will be pro-rated AND she will pay a penalty for the portion of her 2023 contributions that are retroactively considered excess. 

All contributions count toward the limit, including free money or match from the employer, voluntary payroll contributions, or after-tax contributions that you make directly to the HSA bank.  You will get the largest tax savings from payroll contributions, since they are also exempt from social security and medicare tax.

In general, I recommend maximizing your HSA contributions before contributing to an IRA or 401k.  Once you contribute funds to an HSA, you may use them for qualified medical expenses at any time, even if you are no longer eligible to make new contributions.  And when you turn 65, HSA funds can be withdrawn for any reason and you only pay regular income tax, like an IRA, but if you use them for medical expenses, they are tax-free.  It's like a super-IRA.

[bt4540]

(kind of related question)

We filed married jointly.  My kids and I have a HDHP from Jan 2023 through July 2023 and I contributed to HSA My wife has her own non-HDHP for the whole year.  From Aug 2023, my kids and I moved over to my wife's non-HDHP.  What is the contribution limit for me since I had a family non-HDHP from Jan to July? Thanks