What You Must Know About Contributing to a Health Savings Account in 2015

Learn the best ways to fund and withdraw from an HSA throughout the year.

Doctor holding piggy bank
(Image credit: Getty Images/iStockphoto)

Can I still contribute to an HSA for 2014?

Yes, you have until April 15, 2015, to make your 2014 contributions. If you had an HSA-eligible policy for the full year (with a deductible of at least $1,250 for individual coverage or $2,500 for family coverage in 2014), then you can contribute up to $3,300 if you had single coverage or $6,550 if you had family coverage, plus up to $1,000 if you were 55 or older in 2014.

I had an HSA-eligible insurance policy for only part of 2014. How much can I contribute to an HSA?It depends on when you had the HSA-eligible policy. If you had it for the first few months of the year but didn’t have it on December 1, then your contribution amount is based on the number of months you had the HSA-eligible policy. For example, if you had an HSA-eligible individual policy the first four months of the year, you’ll be able to contribute $1,100 for 2014 (four-twelfths of the full year’s contribution for individual coverage).

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If you had an HSA-eligible policy on December 1, 2014, however, then you can contribute the full amount for 2014 -- whether or not you had eligible coverage for the rest of the year. But you must keep an HSA-eligible policy for all of 2015 or else you could have to pay income tax and a 10% penalty on the difference between the amount you contributed and the amount you would have been eligible to contribute, based on the number of months you actually had an HSA-eligible policy in 2014. See Contributing to Your Health Savings Account for more information.

Can I contribute the full amount for 2015 now if I currently have an HSA-eligible policy, even though I haven’t had an eligible policy for all 12 months yet? Yes, you can contribute the full amount now. But if you don’t end up keeping the HSA-eligible policy for the full year (and don’t have it on December 1), you could have to pay taxes and a 6% penalty on the contributions you made for the months you weren’t eligible for the HSA (see the Instructions to Form 8889 for the calculations). Or you can avoid the penalty if you withdraw the extra contribution, and the earnings from that money, before the tax-filing deadline for 2015. Make sure the HSA administrator codes it as a “withdrawal of excess contributions” so it is not reported as a regular withdrawal that would be subject to the penalty, says HSA expert Roy Ramthun.

For more information about the tax rules for HSAs, see IRS Publication 969.

I contribute to my HSA through payroll deduction. My contributions are spread over the full year, but I’m going to have a big medical procedure next month. Can I use the full year’s amount from the HSA at the beginning of the year even though I haven’t actually contributed that much money yet, the way I could with a flexible spending account?No. The rules are different for HSAs than they are for flexible spending accounts. With an FSA, you can use the full amount you plan to contribute over the year starting on January 1. With an HSA, on the other hand, you can only use money that is actually in the account. But if you haven’t accumulated enough money in the HSA to cover your expenses, you can always wait and withdraw the money from the account later, after your balance is higher. As long as you enrolled in the HSA before you incurred the medical expense and hold on to the receipts for eligible expenses, you can withdraw the money tax-free from the account anytime in the future -- even years in the future. Also, unlike FSAs, HSAs do not have a use-it-or-lose-it rule. You can keep the money growing in the account.

Is it better to contribute a lump sum to my HSA at the beginning of the year or contribute through payroll deduction through my employer?If your employer gives you the option to contribute to your HSA through payroll deduction, that’s usually your best bet. That way, your contributions are not only subtracted from your paycheck before federal income taxes are calculated, but they also avoid the 7.65% Social Security and Medicare withholding (FICA taxes), says Jeff Munn, vice-president of benefit policy development for Fidelity. If you write a check, on the other hand, your contributions are tax-deductible but do not avoid FICA taxes. Also, your employer may make extra contributions to your account if you participate in payroll deduction.

For more information about health savings accounts, see FAQs About Health Savings Accounts.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.