By Roy Ramthun, President & Founder, HSA Consulting Services, LLC
FEBRUARY 12, 2016 – On February 4, 2016, Sen. Orrin Hatch (R-UT) and Rep. Erik Paulsen (R-MN) introduced legislation (click on the bill numbers for the legislative language and other pertinent information: S. 2499 / H.R. 4469) that the HSA industry considers the “gold standard” for changes to the HSA program. This is the second in a series of posts summarizing the provisions of the bill that I will post in the coming weeks. Look for my future posts.
Sec. 201 – Allowing Spouses to Make Catch-Up Contributions to the Same HSA
Over the years, many people have asked why families might need to have more than one HSA account. From one perspective, it is certainly easier to manage one account and doing so might save on related account fees. But the main reason why families have needed more than one account applies when both spouses are eligible to make catch-up contributions because they are age 55 or older.
This is usually where I have to remind people that HSAs are individually-owned accounts. As with Individual Retirement Accounts (IRAs), HSAs can have only one account owner. Unlike some other financial accounts, HSA accounts cannot be jointly owned. The issue is further confused by the addition of co-signers (usually a spouse) on the account so they can access the funds in the account through a debit card or other means.
Until both spouses turn age 55, there generally is no need to have two HSA accounts. For example, either spouse (assuming both are eligible) can establish an HSA in their name and deposit the entire family contribution for the calendar year into that account. Further, qualified medical expenses incurred by either spouse may be paid tax-free with the funds in the HSA account.
But once both spouses reach age 55, each spouse must have an HSA account established in their name if both spouses want to make a $1,000 catch-up contribution each year. This may seem like a silly reason to have two HSA accounts, but that is what the law currently requires. Here, the principle of HSAs being individually-owned accounts rules the day.
So a change in the law is needed, and Section 201 of the bill does just that. This provision would allow the spouse who is the HSA account holder to double their catch-up contribution to account for the catch-up contribution of their HSA-eligible spouse. Again, this only applies in situations where both spouses are eligible to make catch-up contributions because they are both age 55 or older.
When would this change be effective? Not until the first calendar year after it is enacted (i.e., not before 2017 at the earliest).
Note that this provision only applies to situations where both spouses are age 55 or older. It does not address situations where the spouse who owns the HSA account is under age 55 but is married to a spouse who is 55 or older. In these cases, the spouses would still need to open separate HSAs until both spouse are age 55. Section 201 of the bill would need to be modified to address these situations.
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