It's Not Too Late to Make Tax-Deductible HSA Contributions

Is it too late to contribute to a health savings account for 2013? What about contributing to an account if I only had a high-deductible health insurance policy for part of the year?

It isn’t too late to contribute to an HSA for 2013, and it’s a great last-minute way to lower your taxable income and build up a stash of money that you can use tax-free for medical expenses in any year. People who had an HSA-eligible policy for all of 2013 (with a deductible of at least $1,250 for single coverage and $2,500 for families) have until April 15, 2014, to contribute up to $3,250 for the year to an HSA if they had single coverage, and up to $6,450 if they had family coverage (plus $1,000 if they are age 55 or older). Keep in mind that any money your employer added to the HSA counts toward your contribution limit.

The contribution limits are trickier if you had an eligible high-deductible policy for only part of the year, says Jeff Munn, vice-president of benefit policy development for Fidelity Investments, which administers HSAs. First, if you had an HSA-eligible high-deductible policy on December 1, you may still contribute the full amounts for 2013—$3,250 or $6,450—but you have to maintain a qualifying policy for all of 2014. If you drop the policy during the year, then you must include in your 2014 income a portion of the 2013 contributions you deducted. If you only had the policy for three months in 2013 (for example, October, November and December), 75% of the 2013 deduction (representing the other nine months) would become taxable in 2014. A 10% penalty would also apply to that amount. Again, this issue would arise only if you drop the high-deductible policy in 2014. See IRS Publication 969, Health Savings Accounts.

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Second, if you had an HSA-eligible policy earlier in the year—say, from January through June 2013—and then dropped it, your maximum contribution limit is based on the number of months you had the policy. For example, if you had the policy for six months, you could make half of the maximum contribution—$1,625 for single coverage or $3,225 for family coverage.

For more information about taxes and HSAs, see Reporting HSA Contributions on Your Tax Return. For more information about making the most of health savings accounts, see Smart Strategies for Health Savings Accounts. For help finding an HSA administrator, see Contributing to a Health Savings Account in 2014.