As a health savings account (HSA) holder, you rely on your tax-free funds to cover a huge range of qualifying products and services. But life happens, and needs change. Outside of an open enrollment period, if you're funding your HSA through payroll deductions, you're only allowed to make changes to your contributions if you experience a qualifying life event (QLE), if your plan allows for it. Of course, if you're funding an HSA on your own, and not from payroll deductions, you're eligible to change your contributions at any time.
Let's take a deeper dive into QLEs, and how you can adjust your coverage to better meet your changing needs. (This article is meant to inform you of the most-common QLEs, but isn't meant to be an exhaustive list. For specifics about your account, talk to your plan administrator.)
So, what exactly is a QLE?
This might be one of the most-common questions we hear throughout the year. A QLE refers is any event defined by IRS section 125 that lets you change your insurance elections outside of open enrollment.
Here are the specific events that can give you a chance to raise or reduce your allocations:
- A change in your number of tax dependents: If you have a child that starts working and gets their own health coverage, you can make mid-year changes to account for the reduction. And the same goes for taking on a new dependent, in case your household is expanding.
- A change in your legal marital status: This includes marriage, legal separation, divorce or death of a spouse. Keep in mind that "legal" has different meanings in each state, so be sure to check with your plan administrator to be 100% sure your union qualifies for mid-year changes.
- Death of a dependent: It's never fun to think about this, but a death of a dependent allows you to make mid-year changes to your health care elections, so you can adjust your coverage and payments accordingly.
- Birth of a child, adoption of a child, or placement for adoption: Not only will bringing home a baby require obvious new health coverage, but adoption might also make you want to consider a companion dependent care FSA to help cover the costs of childcare, if needed.
- A change in your employment status: More specifically, any change (like layoffs) that affects eligibility for health insurance benefits for yourself, a spouse or one of your dependents. Promotions at work likely won't count for this, unless the promotion comes with a different tier of health benefits.
- A change in your dependents' eligibility: An example would be if your child turns 13 and no longer qualifies for coverage under a dependent care FSA.
What should I do if I experience a QLE?
When one of these events takes place or is around the corner, you should speak with your HSA administrator within 30 days of the event to make the necessary changes. Chances are, you'll need a good amount of supporting documentation to prove the life event, so have your records handy and up-to-date.
It's important to remember that not all employers offer mid-year changes to HSAs, so speaking with your benefits administrator about the regulations within your account is extremely important.
With the right guidance qualifying life events can be a little more manageable and can act like a second chance at open enrollment. Eligible dependents can take advantage of a qualifying life event to modify or elect new coverage, and can also cancel coverage they no longer need, potentially saving money each month, and again on tax day.
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Tax Facts is a column offering straight up, no-nonsense HSA tax tips, written in everyday language. Look for it on Tuesdays, exclusively on the HSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook and Twitter.