Can a self-employed person have a Health Savings Account?
"Whether you can establish an HSA has nothing to do with your employment status or your retirement plan. It has to do with the type of medical insurance you have.  The insurance company should be able to tell you if your plan is ""HSA compatible"". To be HSA compatible, a plan must have a ""high deductible"" -- in 2014, $1250 for an individual plan or $2500 for a family plan. It must not cover any expenses before the deductible, that is, you cannot have any ""first dollar"" coverage for doctor's visits, prescription drug coverage, etc. (There are some exceptions for services considered ""preventive care"".) There are also limits on the out-of-pocket max. I think that's it, but the insurance company should know if their plans qualify or not. If you have a plan that is HSA compatible, but also have another plan that is not HSA compatible, then you don't qualify. And all that said ... If you are covered under your husband's medical insurance, and your husband already has an HSA, why do you want to open a second one? There's no gain. There is a family limit on contributions to an HSA -- $6,550 in 2014. You don't get double the limit by each opening your own HSA. If you have two HSA's, the combined total of your contributions to both accounts must be within the limit. If you have some administrative reason for wanting to keep separate accounts, yes, you can open your own, and in that case, you and your husband are each allowed to contribute half the limit, or you can agree to some other division.  I suppose you might want to have an account in your own name so that you control it, especially if you and your husband have different ideas about managing finances. (Though how to resolve such problems would be an entirely different question. Personally, I don't think the solution is to get into power struggles over who controls what, but whatever.) Maybe there's some advantage to having assets in your own name if you and your husband were to divorce. (Probably not, though. I think a divorce court pretty much ignores whose name assets are in when dividing up property.)  See IRS publication 969, http://www.irs.gov/publications/p969/index.html for lots and lots of details." IRS Publication 969 gives all the details about HSA accounts and High Deductible plans: According to your question you are covered by a plan that can have an HSA.  There a few points of interest for you: Contributions to an HSA Any eligible individual can contribute to an HSA. For an employee's   HSA, the employee, the employee's employer, or both may contribute to   the employee's HSA in the same year. For an HSA established by a   self-employed (or unemployed) individual, the individual can   contribute. Family members or any other person may also make   contributions on behalf of an eligible individual. Contributions to an HSA must be made in cash. Contributions of stock   or property are not allowed. That means that yes you could make a contribution to the HSA. Or if in the future you were the provider of the insurance you could have a HSA. Limit on Contributions  For 2015, if you have self-only HDHP coverage, you can contribute up   to $3,350. If you have family HDHP coverage you can contribute up to   $6,650. It sounds like you have a family plan. Additional contribution.   If you are an eligible individual who is   age 55 or older at the end of your tax year, your contribution limit   is increased by $1,000. Rules for married people.   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If   each spouse has family coverage under a separate plan, the   contribution limit for 2014 is $6,550. You must reduce the limit on   contributions, before taking into account any additional   contributions, by the amount contributed to both spouses' Archer MSAs.   After that reduction, the contribution limit is split equally between   the spouses unless you agree on a different division. The rules for married people apply only if both spouses are eligible   individuals. If both spouses are 55 or older and not enrolled in Medicare, each   spouse's contribution limit is increased by the additional   contribution. If both spouses meet the age requirement, the total   contributions under family coverage cannot be more than $8,550. Each   spouse must make the additional contribution to his or her own HSA. Note: most of the document was written with 2014 numbers, but sometimes they mention 2015 numbers. If both are covered under a single plan it should be funded by the person that has the plan. They may get money from their employer. They may be able to have the employer cover the monthly fee that most HSA administrators charge. The non employee can make contributions to the account but care must be taken to make ure the annual limits aren't exceeded. HSA contributions from the employees paycheck may reduce the social security tax paid by the employee. If the non-employee is self employed you will have to see how the contribution impacts the social security situation for the couple. If the non-employee is 55 or older it can make sense to throw in that extra $1000. The employer may not allow it to come from the paycheck contributions because they wouldn't necessarily know the age of the spouse, they may put a maximum limit based on the age of the employee.
In the USA, you probably owe Self Employment Tax. The cutoff for tax on this is 400$. You will need to file a tax return and cover the medicaid expenses as if you were both the employer and employee.  In addition, if he earns income from self-employment, he may owe Self-Employment Tax, which means paying both the employee’s and employer's share of Social Security and Medicaid taxes. The trigger for Self Employment Tax has been $400 since 1990, but the IRS may change that in the future. Also see the IRS website.  So yes, you need to file your taxes. How much you will pay is determined by exactly how much your income is.  If you don't file, you probably won't be audited, however you are breaking the law and should be aware of the consequences. "I am very late to this forum and post - but will just respond that I am a sole proprietor, who was just audited by the IRS for 2009, and this is one of the items that they disallowed.  My husband lost his job in 2008, I was unable to get health insurance on my own due to pre-existing ( not) conditions and so we had to stay on the Cobra system.  None of the cost was funded by the employer and so I took it as a SE HI deduction on Line 29.  It was disallowed and unfortunately, due to AGI limits, I get nothing by taking it on Sch. A.  The auditor made it very clear that if the plan was not in my name, or the company's name, I could not take the deduction above the line.  In his words, ""it's not fair, but it is the law!""" You could open an HSA with a company like Vanguard or Fidelity that offers lower fees and roll the money there if you want to avoid the $3.50/month. The chances of you going until retirement without opportunities to spend down the money in that account on medical expenses seems rather low. "Yes, you can. See the instructions for line 29 of form 1040. Self employed health insurance premiums are an ""above the line"" deduction." CrimsonX did a great job highlighting the primary pros and cons of HSAs, so I won't go into detail there. However, I did want to point out another pro - HSAs are (or can be) easy to manage. You said: Is this a better way to approach health care costs instead of itemizing health care expenses on yearly federal taxes? I'm not sure which company you are looking at establishing your HSA with, but with mine I have a debit card that I use when paying for medical care and then at the end of the year I get a 1099-SA that provides the amount of money spent on qualified purchases that calendar year. Yes, there are a few extra boxes I need to fill in for my 1040 come tax time, but I don't need to itemize my healthcare costs over the year. It really is pretty simple and straightforward. Also, one con that is worth noting is that you become much more sensitive to healthcare costs due to the high deductible healthcare plan an HSA requires. For example, in all the years we've had an HSA we've not yet met our deductible, which means we pay out of pocket for any non-routine doctor visits. (The health insurer pays 100% of routine visits, like my wife's annual, well-baby check ups for the little one, and so on.) So, when you're feeling really sick and think a doctor's visit would be warranted, you have to make a decision: After being faced with this decision a time or two you will start to envy those who have just a $20 copay! Of course, that's just an emotional con. Each year I run the numbers on how much we spent per year on out of pocket plus premiums and compare it to what it would cost in premiums for an HMO-type plan, and the HSA plan always comes ahead. (In part because we are a pretty healthy family and I work for myself so do not get to enjoy group discount rates.) But I thought it worth mentioning because there are certainly times when I know I need to see a doctor or specialist and I cringe because I know I am going to be slapped with a big bill in the not too distant future! "Basically, yes. Don't use your business account for personal spending because it may invalidate your limited liability protection. Transfer a chunk of money to your personal account, write it down in your books as ""distribution"" (or something similar), and use it in whatever way you want from your personal account. The IRS doesn't care per se, but mixing personal and business expenses will cause troubles if you're audited because you'll have problems distinguishing one from another. You should be using some accounting software to make sure you track your expenses and distributions correctly. It will make it easier for you to prepare reports for yourself and your tax preparer, and also track distributions and expenses. I suggest GnuCash, I find it highly effective for a small business with not so many transactions (if you have a lot of transactions, then maybe QuickBooks would be more appropriate)." "I did a little research and found this article from 2006 by a Villanova law professor, titled ""No Thanks, Uncle Sam, You Can Keep Your Tax Break"".  The final paragraph of the article says: Under these circumstances, it is reasonable to conclude that a taxpayer is not required to claim a allowable deduction unless a statutory provision so requires, or a binding judicial precedent so specifies. It would be unwise, of course, to forego a deduction that the IRS considers mandatory such as those claimed by self-employed individuals with respect to their self-employment,    whether for purposes of the self-employment tax or the earned income tax credit. Until the statute is changed or some other binding authority is issued, there is no reason taxpayers who wish to forego deductions, such as the dependency exemption deduction, should hesitate in doing so. (The self-employment tax issues in the quote cited by CQM are explicitly discussed in the article as one of a few special kinds of deduction which are mandatory.) This is not a binding statement: it's not law or even official IRS policy.  You could never use it as a defense in the event that this professor turned out to be wrong and the IRS decided to go after you anyway.  However, it is a clear statement from a credible, qualified source." HSAs are very similar to IRAs. Any investment returns grow tax-deferred and once you reach age 59 1/2 65, you can withdraw the funds for any purpose (subject to ordinary income tax), just like a traditional IRA. If you can afford to do so, I would recommend you to pay medical expenses out-of-pocket and let the funds in your HSA accumulate and grow. In general, the best way to allocate your funds is in the following order: Contribute to a 401(k) if your employer matches funds at a substantial rate Pay off high-interest debt (8% of more in current environment in 2011) Contribute to an IRA (traditional or Roth) Contribute to an HSA Contribute to a 401(k) without the benefit of employer matching One advantage of HSAs versus IRAs is that you don't have to have earned income (salary or self-employment income) in order to contribute. If you derive income solely from rents, interest or dividends, you can contribute the maximum amount ($3,050 for individuals in 2011) and get a full deduction from your income (Of course, you will need to maintain a high-deductible health plan in order to qualify). One downside of HSAs is the lack of competitively priced providers. Wells Fargo offers HSAs for free, but only allows you to keep your funds in cash, earning a very measly interest rate, or invest them in rather mediocre and expensive Wells Fargo mutual funds. Vanguard, known for its low-fee investment options, provides HSAs through a partner company, but the account maintenance charges are still quite high. Overall, HSAs are a worthwhile option as part of your investment plan. Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental   insurance and qualified long-term care insurance for yourself, your   spouse, and your dependents. The insurance can also cover your child   who was under age 27 at the end of 2011, even if the child was not   your dependent. A child includes your son, daughter, stepchild,   adopted child, or foster child. A foster child is any child placed   with you by an authorized placement agency or by judgment, decree, or   other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on   Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ   (Form 1040), Net Profit From Business; or Schedule F (Form 1040),   Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year   reported on Schedule K-1 (Form 1065), Partner's Share of Income,   Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from   self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a   more-than-2% shareholder. Health insurance premiums paid or reimbursed   by the S corporation are shown as wages on Form W-2, Wage and Tax   Statement. The insurance plan must be established, or considered to be   established as discussed in the following bullets, under your   business. For self-employed individuals filing a Schedule C, C-EZ, or F, a   policy can be either in the name of the business or in the name of the   individual. For partners, a policy can be either in the name of the partnership or   in the name of the partner. You can either pay the premiums yourself   or your partnership can pay them and report the premium amounts on   Schedule K-1 (Form 1065) as guaranteed payments to be included in your   gross income. However, if the policy is in your name and you pay the   premiums yourself, the partnership must reimburse you and report the   premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to   be included in your gross income. Otherwise, the insurance plan will   not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of   the S corporation or in the name of the shareholder. You can either   pay the premiums yourself or your S corporation can pay them and   report the premium amounts on Form W-2 as wages to be included in your   gross income. However, if the policy is in your name and you pay the   premiums yourself, the S corporation must reimburse you and report the   premium amounts on Form W-2 as wages to be included in your gross   income. Otherwise, the insurance plan will not be considered to be   established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name   that is similar to qualifying private health insurance can be used to   figure the deduction. If you previously filed returns without using   Medicare premiums to figure the deduction, you can file timely amended   returns to refigure the deduction. For more information, see Form   1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan   distributions that were nontaxable because you are a retired public   safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29. If you do not presently have an HSA-compatible insurance plan, you cannot legally add money to your HSA. You can still withdraw, but you can't add. So basically your choice are to let the money sit there and be nibbled away by the monthly fees, to withdraw it anyway and pay the tax penalty, or to spend it on whatever medical expenses you do have. I have no idea what your expenses are, how good your present insurance is and how often you and any dependents see a doctor or get prescriptions. If you used it for ALL uncovered expenses, how long would it take to use it up? HSA's are one of the few accounts where the money is both tax free going in and coming out. For long term savings, the only account that might beat that is a 401(k) with an employer match. Unlike an FSA, the money can stay in the account indefinitely. You can also use the money to pay medical insurance premiums once you separate from the employer. An HSA combines the best features of a FSA, Roth account, and IRA/401(k) account. As such I think there is rarely a reason not to max one out, and in fact I think it is worth it to go out of your way to get access to one. There are some drawbacks, of course. If you don't use the money for medical expenses, it may be taxed and perhaps penalized. Getting access to one can be tricky (you have to be covered by an HDHP, but not by a non-HDHP, nor by an FSA). The low contribution limits make it hard to build up a large balance. Many providers charge a monthly fee of $1 to $4 if you want to invest the balance (small, but it adds up, especially given the low balance per previous sentence). Yes, you will need to deposit the funds into your HSA, then withdraw them to reimburse yourself for the expenses. The tax deduction comes when you contribute (deposit) to your HSA.  If you do not deposit the money there, you will not be able to claim the deduction.  Your HSA provider reports the amount of your contributions to the IRS, so the amount you say you contribute to your HSA on your tax return has to match what your HSA provider reports. When you deposit the money to your HSA, you need to explicitly tell your provider that the contribution is for tax year 2014.  The reason is that you want to make sure that they report the amount of your 2014 contributions to the IRS correctly. After you've deposited the amount into your HSA, you can withdraw it to reimburse yourself for an eligible medical expense.  In order to be eligible, it needs to be an expense that was incurred while you had the HSA in place.  If you had your HSA account in place before you paid the expense, no problem.  But if you set up the HSA account after you paid for the expense, you might be out of luck. The distribution (withdrawal) will be a part of tax year 2015, and you'll see this amount included as part of the gross distributions on your 1099-SA form next year. When I first set up my HSA, I didn't have any extra money to fund the HSA, so I handled it just like you are talking about.  I would wait until I had a medical bill, then deposit the amount I needed into my HSA and withdraw it back out to pay the bill. On re-reading the question, I see that you're self-employed, decent income, but only have an IRA. Since the crux of the question appears to be related to your wanting to put aside more money, I suggest you open a Solo 401(k) account. The current year limit is $17,000, and you can still have an IRA if you wish. For the first four months of the year, when you were an employee, the health insurance premiums were paid for with pre-tax money.  When you receive your W-2 at the end of the year, the amount in Box 1 of the W-2 will be reduced by the amount you paid for health insurance.  You can't deduct it on your tax return because it has already been deducted for you. Now that you are a 1099 independent contractor, you are self-employed and eligible for the self-employed health insurance deduction.  However, as you noted, the COBRA premiums are likely not eligible for this deduction, because the policy is in your old employer's name.  See this question for details, but keep in mind that there are conflicting answers on that question. OK, so first of all, employers don't set up IRAs.  IRA stands for Individual Retirement Account.  You can set up a personal IRA for yourself, but not for employees.  If that is what you're after, then just set one up for yourself - no special rules there for self employment. As far as setting up a 401(k), I'd suggest checking with benefits management companies.  If you're small, you probably don't have an HR department, so managing a 401(k) yourself would likely be overly burdensome.  Outsourcing this to a company which handles HR for you (maybe running payroll, etc. also), would be the best option.  Barring that, I'd try calling a large financial institution (Schwab, Fidelity, etc.) for clear guidance.