Family HSA vs Individual: What’s the Difference?

Editor’s note: An earlier, and shorter version of this blog post was previously published. We published this update because it’s vital you know the differences between a family HSA and individual HSA, and how to tap into your HSA funds for your family.

Familiar with the tax-saving benefits of a health savings account (HSA), and wondering how you can extend those benefits to your family? While an HSA is owned by one person, there is a way to tap into those HSA funds for the rest of your family. Discover how, and the differences between a family HSA and individual HSA.

Your HSA is Dependent on Your Health Care Coverage

To contribute to an HSA, you must enroll in an eligible High-Deductible Health Plan (HDHP).

For 2020, the HSA eligibility requirements are as follows:

• The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage.
• The health plan’s out-of-pocket maximum cannot exceed $6,900 for individual coverage. And $13,800 for family coverage.

These eligibility requirements change in 2021:

• The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage (No change from 2020).
• The health plan’s out-of-pocket maximum cannot exceed $7,000 for individual coverage. And $14,000 for family coverage ($100 and $200 increase from 2020).

What is a Family HSA?

While often referred to as a “Family HSA” account, there is actually no such thing.

Each HSA is owned by one person. But family coverage under a qualifying HDHP allows you to use your HSA to pay for qualifying medical expenses for yourself and your family. The type of health plan (individual or family) you’re enrolled in decides how much you can contribute to your HSA account in one calendar year.

If you are enrolled in an individual qualifying high-deductible health plan, you will only be able to contribute the individual maximum contribution amount set annually by the IRS. If you and your family are covered by the same qualifying health plan, then your contribution limit is increased to the annual contribution limit set for families. One rule: To contribute the maximum family contribution limit, none of the family members can be claimed on another person’s tax return.

Annual HSA Contribution Limits

In 2020, you are allowed to contribute the following amounts to an HSA:

• $3,550 for individual health plans
• $7,100 for family health plans

These contribution limits change slightly in 2021:

• $3,600 for individual health plans
• $7,200 for family health plans

If enrolled in an HSA-eligible HDHP, and at least 55 years old—or will be 55 any time in the calendar year—you can make an extra $1,000 contribution. This is a “Catch-Up” Contribution.

The catch-up contributions for 2020 and 2021 are the same: $1,000 on top of your maximum contribution limit.

Real-Life Examples

Individual Health Plan with HSA

During open enrollment, James chooses an HDHP because he wants to take advantage of his employer’s contributions to an HSA. James is not currently married and doesn’t have any dependents, so his health plan will cover only him.

As an individual, James can contribute $3,550 dollars into his HSA account in 2020 without a penalty.

Family Health Plan with HSA

Fast forward a few years, and James is now married with two children. James is at a different company, but still has his HSA and an HDHP that covers him and his family.

James is now eligible to contribute the family limit to his HSA. We won’t know exactly what that amount will be in the future. But if James had his family covered by his health plan in 2020, he would be able to contribute $7,100 within one calendar year.

Can I Have a Joint HSA With My Spouse?

Short answer: No. An HSA is owned by one person.

Yet, there is a way for you and your spouse to have HSAs of your own. If you and your spouse are covered under the same HDHP, you can each open your own HSA and contribute separately. But, the amount you and your spouse contribute, combined, cannot exceed the contribution limit for a family plan.

Real-Life Examples:

Family HSA Contribution Limit with Two Accounts

Jack and Diane are married and covered under Jack’s high-deductible health plan. Diane wants to take advantage of her employer’s HSA contributions, so she decides to open up an HSA of her own.

In 2020, Jack and Diane’s total contributions cannot exceed $7,100. That means that whatever Jack contributes to his HSA and whatever Diane contributes to her HSA added together needs to be $7,100 or less.

Jack and Diane can use these funds to pay for the qualified medical expenses of those covered under their health plan, including each other.

Family HSA Contribution Limit with One Account

The other option is to have the entire amount of the HSA in one account holder’s name. In this case, Jack opts not to contribute anything into his HSA for the year, and Diane and her employer will be able to contribute the entire amount into her account.

The Benefits of an HSA

There are four primary benefits of having an HSA.

1. Three levels of tax savings. Pre-tax or tax-deductible contributions. Tax-free interest, and investment earnings. And tax-free withdrawals when used for qualifying medical expenses.
2. Portability. HSAs aren’t tied to your employer. If you decide to move to a different company or retire, your HSA stays yours. The funds added to your account stay there until you choose to withdraw or roll it over; like a 401(k).
3. A safety net in the event of a health-related emergency. An HSA helps you save for the unknown. It can be used for unexpected health care expenses or health insurance if you’re between jobs. An HSA covers all qualified medical expenses, even after a change of plans or providers.
4. Flexibility in retirement. When you turn 65, your HSA can be used for non-health-related expenses without penalties; like a 401(k), or IRA.

An HSA is a great safety net in the event of a health-related emergency. And with options to invest, choosing to open an HSA is one of the best financial choices you can make for you and your family.