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What are IRS rules regarding employment termination and employee pre-tax lump sum contribution to HSA account? i.e. Jan 2019, Feb 2019 employee contributes 100 a week for total of $800 in HSA. Employee is severed on March 2019 and elects to push severance into HSA up to HSA limit, say $6200. Is that $6200 pre-tax contribution or not?

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The are two distinct parts to this answer:

  1. You can only contribute up to the HSA limit for 2019 if you have a HDHP eligible health plan for the entire year. If not, the contribution limit is reduced based on how many months of coverage there were.

  2. As long as you are eligible to contribute to an HSA, then how you contribute it doesn't matter. It can be by reducing your paycheck, or from severance, or from your personal savings, etc. The contributions will be tax deductible regardless of the funding source. If the source is by reducing your paycheck, then there is the additional advantage of reducing your FICA wages as well (meaning you save an additional 6.5% too) but realize this tax savings today also could slightly reduce the amount of Social Security you're eligible to receive when you retire.

  • So if one where to continue, under Cobra, their HDHP health plan through their employer until Dec 31 2009, than it meets the requirement of having an HDHP health plan for the entire year? – paulj Nov 13 '18 at 18:01
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    @paulj - yes, as long as the policy is an eligible HDHP, it's still eligible under COBRA. – TTT Nov 13 '18 at 23:22

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