Here’s a quirky but important benefits twist that comes up when young adults stay on their parents’ health plan. It’s the kind of detail that brokers, HR teams, and employers should understand — and it’s one that can be surprisingly valuable for families.
The ACA and Dependent Coverage
Under the Affordable Care Act, health plans that cover dependents must allow children to remain on a parent’s plan until age 26. That’s true even if the child is married, out of school, or no longer a tax dependent.
How HSAs Define Eligible Expenses
Health Savings Accounts (HSAs) work differently. An HSA belongs to one individual, and the funds can be used tax-free for the account holder, their spouse, and their tax dependents. If a 24-year-old child is still on a parent’s HDHP but is no longer a tax dependent, the parent cannot use HSA dollars to pay for that child’s medical bills.
Where It Gets Interesting
Here’s the loophole: if that 24-year-old has HSA-qualified coverage and no disqualifying coverage, they can open their own HSA. And because they’re covered under a family plan (since the plan covers more than just one person), they’re eligible for the family HSA contribution limit—not the single limit.
In other words:
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Parents can contribute up to the family maximum in their own HSA.
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The adult child can also contribute up to the family maximum in their own HSA.
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Neither can use their HSA dollars for the other’s expenses, but both can build tax-advantaged savings at the highest level.
This is different from the rules for married couples, who must share the family maximum between their two accounts. Because the young adult is not a tax dependent, their HSA eligibility is separate and unaffected by the parent’s contributions.
Takeaway for Employers and Advisors
This isn’t a strategy that fits every family, but it highlights the odd ways benefit rules can intersect. For employees with older children still on the plan, it’s worth pointing out that the child may be able to open their own HSA and maximize contributions — essentially creating two sets of tax-advantaged savings under the same health plan.
For more detail on HSA rules, see IRS Publication 969.