A Health Savings Account (HSA) is a rare type of account where you can get a tax deduction when you put the money in and then pay no tax when you take the money out for qualified medical expenses.

Knowing how much you can contribute to your HSA can be a bit confusing when it comes to family health insurance plans. The insurance covers everyone on the plan, but Health Savings Accounts (HSAs) are individually owned. All the individuals on one tax return, the joint or individual taxpayer and their dependents, are allowed to spend out of the Health Savings Accounts of the primary tax payer(s). Other independents on the plan, however, must open their own HSA.

Effectively, this means that each tax return represented in the group plan can collectively fund individually owned Health Savings Accounts up to their plan type’s maximum. This means that adult children on their parent’s plan can fund their own HSA up to the family contribution limit even while a husband and wife share the HSA contribution limit between them.

Most married couples have a family plan, and one spouse owns an HSA. They contribute the family maximum to that one HSA and then spend their joint medical expenses out of it.

However, there may be benefit to opening HSAs for both spouses.

First, while the contribution limit is shared between the spouses, the age 55 catch-up provision is individually owned. This means that if both spouses own an HSA and are older than age 55, both can make the catch up contribution.

Second, you cannot transfer the money freely between two HSAs, even if they are owned by spouses. Rollovers and transfers are only tax-free to the extent they go from your existing HSA to another HSA set up in your name. This means that if you ever have marital troubles the spouse who doesn’t own the HSA must use a divorce decree to gain access to the funds.

Fortunately, spouses can inherit an HSA. You can use a spousal rollover to inherit an HSA from your spouse without creating a taxable event. Unfortunately for others, the government requires non-spouses who inherit an HSA to immediately liquidate the account and pay tax on the balance.

Unfortunately for minors, there is no easy way to get an HSA. Tax dependents, like most minor children, are not eligible for HSA contributions, and HSAs cannot be inherited as an HSA by a non-spouse.

Even with the odd family contribution rules, we recommend that you fund your Health Savings Account (HSA) to the maximum limit each year and that you keep funding it to the maximum as long as you can no matter how much money you have in the account.

Funding your HSA to the maximum has many advantages and few disadvantages. The primary reason to have HSA compatible health insurance is specifically to be able to fund your HSA to the maximum. You will likely use your entire HSA balance in your lifetime. It can help provide a tax efficient way to self-insure for long-term care. And it can function like an IRA with no required minimum distributions.

That being said, if you are married, instead of only opening and funding one HSA, you may benefit from splitting the contribution limit and funding both.

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