Your HSA can pay the health costs for any of your tax dependents, even if they are not covered under your health insurance plan. However, they can't be used for anyone you don't claim as a dependent on your taxes, such as a child who has turned 18 and is not a full-time student. In this scenario, you may be able to fund another HSA to help the dependent with those costs.
And, you can contribute up to the IRS family HSA contribution maximum for this additional account.
That means, you could fund your HSA up to the family maximum, and your health plan dependent's HSA also up to the family maximum.
Why you should consider funding their HSA
You don't have to contribute the family maximum to see the benefits of this strategy. With rising health costs in America, it is more important than ever to proactively save for the unexpected. Establishing an HSA for someone who just became (or is about to become) financially independent is a good way to:
- Teach financial awareness
- Provide a safety net for any unforeseen injuries or illnesses for years to come (this can be especially helpful if their budget is tight)
- Set them up with funds they can keep for as long as they want, even after they come off your insurance plan
Your health plan dependent can continue to fund the account themselves if they establish coverage under an HSA-qualified health plan.
We haven't listed tax deductions as a reason for setting up an HSA for a health plan dependent. That's because under IRS law, the plan is theirs, which means that only they can claim contributions to this account, even if you provided the funds.
Who can open an HSA for a health plan dependent
If you want to fund a second HSA for a family member, they must be covered as a dependent under your HSA-qualified health insurance plan (or under another qualifying plan). They must also meet the same requirements you had to meet before you could open your HSA. These include:
- You cannot be claimed as a tax dependent by someone else
- You cannot be enrolled in Medicare or Tricare.
- You cannot be covered under a health plan (as an individual, spouse, or dependent) that is not an HDHP
- If you are also covered by a medical flexible spending account (FSA), it must be a limited FSA, covering only vision and dental expenses.
This applies even if the FSA is in your spouse's name.
- If you are also covered by a health reimbursement arrangement (HRA), it must be a limited HRA, covering only vision and dental expenses.
This applies even if the HRA is in your spouse's name.
If you are not sure if your plan is HSA compatible, please contact your insurance company.
When to open the HSA
If keeping a health plan dependent under your coverage and funding their HSA makes sense for your family for a few years, you will have more time to build this safety net of funds for them.
Now, let's cover the rules on timing:
- When is my family member eligible for their own HSA?
- Per the IRS, changes to a person's tax dependent status take place on the first day of the following month. You can find the IRS rules around tax dependent status on their website. Keep in mind you MUST keep this family member covered by your HSA-qualified health plan (or ensure that they are covered by another qualifying plan).
- When can you open the HSA?
- If your dependent is covered by an existing HSA-qualified health plan, they would be eligible to open the HSA the first day they are no longer a tax dependent.
- When must you stop contributing to the HSA?
- When your family member is removed from your health plan coverage, this change will be effective in the eyes of the IRS on the first day of the following month. As of that day, you cannot contribute to their HSA any more, unless they have other qualifying coverage. Keep in mind that any funds already in the HSA are available to your family member for as long as they want. They can also start contributing to the HSA again if they get coverage from another HSA-qualified health plan.
How to open an HSA for a health plan dependent
We recommend opening the account together with your health plan dependent. Before you begin, here are some important requirements to keep in mind:
- Your health plan dependent will be responsible for all fees associated with the HSA. More on that later.
- In order to be compliant with IRS law, the account must be opened in your health plan dependent's name. They must open this HSA as an individual. This is true even if your HSA is employer-sponsored.
- The contributions you or your health plan dependent make will not be payroll deductions, so they will occur after income tax has been taken out. Your health plan dependent can claim these contributions on their tax returns, but you cannot.
Step 1 - Choose an HSA plan
You can find a list of available Further HSA plans on this page, by clicking the For Individuals tab. You'll want to compare the following:
- Administrative Fee: Your health plan dependent us responsible for the fees associated with their HSA. If you received your HSA through your employer, they might have chosen to cover your administrative fees for you. That won't be the case with this secondary HSA. The monthly fees are deducted from the account balance.
- Credit Ratings: Your dependent can earn interest on their HSA funds. The interest rate used is based on the balance of the HSA.
Step 2 - Apply for the HSA
You can do this by following these steps:
- Access the HSA Application and click Start Application.
- Fill out the Personal Information form. At the bottom, be sure to leave both check marks cleared. Even though your employer may sponsor your HSA, the employer is not sponsoring the HSA for your health plan dependent.
- Fill out the Contact form--remember to enter the health plan dependent's information.
- Fill out the Account form.
- The Health Plan Effective Date should reflect the date when health plan coverage began for this current tax year for this dependent.
- The HSA Effective Date can be the next business day.
- Enter the HSA Plan you decided upon in step 1.
- Fill out the Banking form with information about the bank account you will use to initially put funds into this account.
- Contributing at least $5.00 to the HSA is required at this point in order to activate it.
- You might want to have your health plan dependent use their personal bank account for this initial contribution so that later, when they withdraw funds from the HSA, the funds go to their bank.
- We'll cover how you can contribute funds to your health plan dependent's HSA later in this article.
- Make sure everything looks correct on the Review form, and then read and agree to the Terms & Conditions before submitting your application.
- We recommend having your health plan dependent register for online portal access right away, to continue configuring this account. They should do the following:
- Add you as an authorized contact. Instructions here.
- (If you entered your bank account information to fund the account) Change the banking information to their personal bank account so they can withdraw funds. Instructions here.
- Designate a beneficiary who will receive HSA funds if they pass away. Instructions here.
- Brush up on the basics of an HSA. Information here.
Step 3 - Fund the HSA
If you want to financially support your health plan dependent by contributing funds to their HSA, you can do so by transferring funds from your bank account to the HSA. To do this, you'll need to get the full account number from your health plan dependent.
They can get this information by calling Further at 800-859-2144. They can also find this number on the online portal. Ask them to:
- Sign in at www.hellofurther.com.
- Click My Profile, then See all Settings.
- Scroll to HSA Settings section. Next to "View Full Account Number", click View.
- They'll have to go through two-factor authentication to see it (they will either get a call, text, or email with a temporary PIN).
- Write down the full account number and provide it to you.
Once you have this account number, you can use it to send funds from your personal banking account to their HSA. For must bank providers, you can use their online bill paying tools.
How much contribute to a health plan dependent's HSA
Combined, your contributions and anything the health plan dependent contributes must add up to an amount lower than the IRS family HSA contribution maximum for the year.
If you are helping the health plan dependent open this account mid-year, keep in mind that you'll have to prorate the contributions so you don't go above this limit. To discover how much you can contribute to this account, figure out how many months out of the current plan year the dependent will have this account.
The math will look like:
- Divide the family HSA contribution maximum by 12.
- Take that resulting number and multiply it by the number of months this HSA will be open for the current tax year.
A note on taxes
The dependent can receive tax deductions on all contributions made to the account (both yours and any contributions they make). The IRS requires them to report the contributions on Form 8889 when filing their tax returns. You can find more information in HSAs and Your Taxes.