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Generous Health Plan May Not Preclude HSA Contribution

If you’re covered by a qualifying high-deductible health plan, you can generally make annual deductible contributions to a tax-saving Health Savings Account. However, things can get tricky if you are married and your spouse has more generous coverage through his or her job.

Can you still contribute to a Health Savings Account? An IRS ruling clarifies this question by stating an individual with high deductible health plan coverage can contribute to a health savings account even when his spouse has other family coverage with lower deductibles — provided the individual is not under the umbrella of the spouse’s more generous coverage. (IRS Revenue Ruling 2005-25)
Here are some general rules:

If either spouse has family health coverage, both are treated as having family coverage for purposes of determining eligibility to make Health Savings Account (HSA) contributions.
If the spouses both have family coverage under different high deductible health plans, both are treated as having family coverage under the plan with the smaller deductible. The result is lower allowable HSA contributions.

However, a special set of favorable rules applies when one spouse has high deductible health coverage while the other spouse has a health plan which does not include a high deductible.

Bottom Line: Even if your spouse has relatively generous family health coverage, the IRS acknowledges you are not necessarily precluded from making tax-favored HSA contributions. If you’re interested in the tax-saving Health Savings Account concept, please contact your benefits consultant or tax adviser to see if the option makes sense in your specific financial circumstances.

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