Financial Fact or Fiction

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Test Your Knowledge of Health Savings Accounts
(Updated: 08/08/2017)

Health Savings Accounts (HSAs) allow you to set aside part of your paycheck on a pretax basis, so you can use that money to pay for certain medical expenses at a later date. But HSAs aren't available for everyone.

Which of the following would make you ineligible to contribute to an HSA in 2017?

  1. You become covered under a high-deductible health plan (HDHP) on December 15, 2017.
  2. Your spouse has non-HDHP coverage, but you aren't covered by that plan.
  3. Your spouse is enrolled in Medicare, but you are not.
  4. You are claimed as a dependent on someone else's 2017 tax return.
  5. A and D.
  6. None of the above.

 

 

 

Answer: E.

Under a provision called the Last-Month Rule, if you are covered under an HDHP anytime up to the first day of the last month of the tax year (typically, December 1), you are eligible to make a contribution to an HSA. But if you don't become covered under an HDHP until some time after that first day of the last month (in our example, December 15), you'd be ineligible to contribute to an HSA for 2017.

Further, the Last-Month Rule has a testing period that runs from December 1 of the current year through December 31 of the next year. If you don't remain eligible to contribute to an HSA for that entire period—say you end your HDHP coverage at some point during the year—any excess contributions made to the HSA would incur taxes, as well as a 10-percent penalty.

Also, if you are claimed as a dependent on someone else's tax return, you are not eligible to make contributions to an HSA.

For more details, see IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans.

 

 

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Fact vs. Fiction

We understand that it can be tricky navigating the world of personal finance. Everyone seems to have an opinion, and it can be hard to know what to believe. We created this series as a way to present and debunk some of the most common financial myths.

Fiction: By letting my adult kids live with me, I’m helping them become financially independent.

Fact: There’s a fine line between providing temporary support to grown children and enabling bad habits. In offering free or cheap housing, are you setting the expectation that you'll continue to fund a lifestyle that your children may not be able to afford on their own? To foster financial independence, consider some compromises: Charge rent or ask them to cover at least one expense (such as groceries for the household) on a consistent basis. Set boundaries and keep track of how your children spend their money—you want to help relieve the stress from crushing student loan debt, but you don't need to finance their vacations or spa visits.

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Last Updated: 08/14/2017