Can I Open an HSA for my Child?

A Health Savings Account (HSA) is a great way to help fund your healthcare costs today and save for the future. If you’re covered under a qualifying high-deductible health plan (HDHP), you can make tax-free contributions to an HSA. 

You can use the contributions you make for IRS approved healthcare items and services, tax-free! Also, if you don’t use all the money you contribute, it rolls over each year, so you won’t lose it. The money earns interest over time, making it a great way to save for retirement-related medical costs.

With all the benefits of HSAs, you may be wondering exactly who you can use your HSA money for. Maybe you’re wondering if you can open an HSA for your children? Let’s explore these questions.

 IRS Publication 969 states that you can withdraw tax-free HSA money to pay for qualified medical expenses for the following people:

• You and your spouse
• All dependents you claim on your tax return
• Any person you could have claimed as a dependent on your return except that:
• The person filed a joint return
• The person had a gross income of $4,150 or more OR
• You, or your spouse if filing jointly, could be claimed as someone else’s dependent.

As long as the person fits one of these categories, you can use your HSA funds to reimburse yourself for their qualified medical expenses.

To be eligible for an HSA, an individual must meet the following IRS defined requirements:

• They must be covered by a qualifying high-deductible health plan (HDHP) on the first day of the month.
• They have no other health coverage except what is permitted by the IRS.
• They are not enrolled in Medicare
• They cannot be claimed as a dependent on someone else’s tax return.

The last requirement is critical, as an HSA holder cannot be claimed as a dependent on anyone else’s tax return. Unfortunately, this means you can’t open an HSA for your young children as they must file their own taxes to have one. The good news is that the other three requirements should apply to most adult children.

Thanks to health care reform passed in 2010, adult children up to the age of 26 can be covered under their parent’s health plans, including HDHPs. For your adult children under the age of 26, who are covered by your HSA-eligible, HDHP, they may be able to open and fund an HSA and contribute up to the IRS maximum family contribution.

You’re 55 and have a 24-year-old son. Your son is still on your health insurance because it’s cheaper than his employer’s coverage, and you’re both covered by a qualifying HDHP. 

You can contribute the full family amount ($7,000 in 2019), to your HSA. You can use your HSA funds to pay for your medical care. You can’t use the money to pay for your son’s medical expenses as you can’t claim him as a dependent.

However, your son can open his own HSA, because he is covered by your HDHP but files his personal taxes. He can contribute the entire allowed family amount too because he’s covered under a family HDHP. You can make contributions on his behalf, and he can withdraw funds from his HSA to cover his medical expenses.

It’s worth noting that there are tax rules and insurance rules that play a part in everyone’s personal circumstances and it’s vital to check with a tax professional to make sure you know exactly how things will work for you.