Are you planning for a baby in the near—or not-so-near—future? If so, have you given any thought to how you can best use your HSA to cover the expenses you're likely to incur, and how you can maximize your HSA benefits while you're growing your family?

You probably already know that you can use your HSA funds to cover the out-of-pocket medical costs that go along with having a baby. That includes the obvious costs (like having to meet your health plan's deductible), but it also includes things like ovulation predictors and, as long as you get a letter of medical necessity, the cost of hiring a doula.

Save accordingly...

You should expect that you'll meet your health plan's deductible the year you have a baby, and in most cases, the full out-of-pocket maximum—so be sure you know how much that is. But there is also a wide range of products for babies and moms that can be purchased with tax-free HSA funds.

You'll also want to get familiar with HSA-eligible products and services ahead of time, so that you can either use HSA funds to pay for them or save your receipts and reimburse yourself from your HSA at some point in the future.

Consider contributing your personal max...

If you have an HSA-qualified high-deductible health plan (HDHP), it's a good idea to be fully funding it in preparation for the cost of having a baby. In 2019, you can contribute up to $3,500 if the HDHP covers just yourself, and up to $7,000 if it covers at least one other family member.

Keep in mind that if you currently have self-only coverage under your HDHP and you're planning to add your new baby to your health plan, you'll be allowed to contribute more to your HSA at that point.

If your HDHP already covers at least one other family member, the addition of your new baby won't change your contribution limit, since the full family limit applies anytime you have two or more people covered on the plan. But if you currently have self-only HDHP coverage and you add your baby to your plan, that makes you eligible to contribute the family amount ($7,000 in 2019) to your HSA.

There are two different ways you can approach that change: You can make your contributions on a prorated basis using a limit of $291.66 per month for each month before you add the baby to your plan (that's 1/12 of $3,500) and then using a limit of $583.33 (1/12 of $7,000) for each month when you and the baby are both covered by your HDHP (these amounts can change annually, so if you're having a baby in 2020 or beyond, the numbers could be a little different).

But you also have the option to contribute the full $7,000, as long as your baby is added to your plan by the first of December. This is explained in a notice that the IRS published in 2008. But it's important to understand that if you go that route, you also have to make sure that you continue to be eligible to contribute to your HSA throughout the entire following year.

You aren't required to make contributions during that year, but you do have to remain HSA-eligible. If you don't, you'll end up paying income tax plus an extra 10% tax on the amount you contributed to your HSA that was over what you would have been allowed to contribute using the prorated approach.

Don't forget past expenses...

As you plan for your growing family, keep in mind that you can use HSA funds to reimburse yourself for expenses that you incurred in the past, as long as the HSA was already established when you incurred the expense.

So, as long as you already have your HSA when your baby is born, you can put money in it later on and then take that money back out, tax-free, to pay yourself back for the out-of-pocket costs from the birth.

If you don't have the money up-front and have to set up a payment plan with your doctor or hospital, this can be a good way to ensure that you're getting to use tax-free money to cover your out-of-pocket costs, even if you're having to stretch the repayment out over a longer period of time.

A quick word about adoption

The costs associated with adoption are not considered qualified medical expenses, so you can't use your tax-free HSA funds to cover them (you're always able to withdraw money from your HSA for whatever purpose you like, but you'll be subject to income tax and a 20% penalty if you use the money for something other than qualified medical expenses). But as soon as the child becomes your tax dependent, his or her medical expenses can be covered using tax-free funds from your HSA.


Tax Facts is a weekly column offering straight up, no-nonsense HSA tax and finance tips, written in everyday language. Look for it every Tuesday, exclusively on the Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook and Twitter.

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