HSAs & COBRA - Can I Contribute And Pay Cobra Premiums Same Year?

uhwtm2 | Dec 31, 2024 | 19 posts since 2023

Hsa $ can be used to pay for premiums only if you're on cobra and I'll be on cobra for 2025 with the same hsa-qualified plan I've had thru work.

Does that mean I can both make my yearly hsa contribution (for the upfront tax break ) then quickly take that same amount out to go towards cobra premiums for the same year?

I found articles saying its ok to use hsa funds for cobra premiums, and articles saying you can still contribute to a hsa-qualified plan even if on cobra. But nothing either way about doing both - making a contribution then taking it out to help pay the cobra premiums same year.

I guess its ok? Has anyone had experience with this?

I know I could invest the hsa $ instead or go with a non-cobra plan, but i ran the numbers and this is what i want to do. It'd be nice to at least get the upfront $4300 tax writeoff (max amt for 2025)

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Answers

CDMD | Jan 4, 2025 | 141 posts since 2022

Hi yes I have. I am not a tax expert and you should do your own research on Google or ask an advisor…. But here’s my understanding/experince to make an HSA deposit in that tax year you must have qualifying income in that same tax year of the HSA deposit. The IRS has a publication on what is qualifying income and the amount necessary for your deposit. The rules also get a bit complicated on when you earn your income by which month and which and how many months you were covered under the cobra plan. the rules will potentially limit how much you can deposit. They will prorate your allowance I believe based on the policy ie high deductible or not. Also be sure that your cobra policy is a qualifying high deductible plan. If it’s not you most likely may not be able to make a HSA contribution. Presuming your company sponsored plan was a qualifying plan before you left employment. There’s many good websites that spell out all the scenarios and rules in plain language that you can see how they apply to your circumstances. Ps it gets a bit trickier in the year your cobra only covers a partial year either at the front end of your Cobra and most particularly at the back of if your cobra when it runs out and your insurance coverage may change policy types. It took me several hours of reading to make sure that can’t be summarized in a brief outline here.
As it relates to cobra premium deductions I did in fact also take an allowed cobra premium withdrawal from a HSA account in the same year as making a qualified HSA contribution Watch out for if you are married and who’s covered by the policy and this is a key for how much you can deposit with spousal coverage. Again I am not a tax expert. Just trying to point you what to think about and research to do more of. Good luck.

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