Medicare and Health Savings Accounts: Here’s What You Need to Know

By RetireMEDiQ

Many employers offer employees a Health Savings Account (HSA) as part of their health benefits. HSAs are financial accounts made available to employees, so they may contribute funds without paying any taxes on them. All funds that are put into an HSA must be used for qualified medical expenses. If the funds are used for any other purpose, the money will be taxed.

Medicare and HSA Contributions

If you currently have an HSA through your employer, it’s important to know that when you are ready to switch to a Medicare Part A and/or Part B plan, you may no longer contribute to your HSA account. This is a law and does not vary from plan to plan. 

Medicare and HSA Withdrawals

If you started the year with an HSA and still have a balance in your account by the time you enroll in Medicare, you may continue to make withdrawals on your account to pay for qualified medical expenses. The money you take out will not be taxed as long as you are using it for approved expenses, such as deductibles, premiums, copays and coinsurance. You can work with your employer to pro-rate the amount of money you contribute to your HSA during a calendar year if you know you will be enrolling in Medicare during that year.

HSAs and Delayed Medicare Enrollment

Working past 65 may mean that you decide to defer your Medicare enrollment. Depending on your personal situation, you may consider delaying Medicare enrollment if you are 65 years old (or older) and work for an employer with 20 or more employees, or you are under age 65 and work for an employer with more than 100 employees.

Medicare Enrollment Form

It’s possible that one person’s given situation could mean that contributing to an HSA with pre-tax dollars is the right fit for their health care needs, while for another individual, it may mean that enrolling in Medicare at age 65 is the right choice.

To learn more about using Medicare as a secondary form of coverage, click here. You can also consult with a RetireMEDiQ Benefit Advisor about what makes the most sense for your specific situation.

HSAs and Social Security

If you decide to defer your enrollment in Medicare when you are first eligible and continue with your employer-provided health insurance, it is important to know that this decision impacts your ability to collect Social Security benefits. You must stop all contributions to your HSA up to six months before you collect Social Security. The reason for this is because Medicare Part A becomes retroactive for up to six months from the time you apply for Social Security benefits, assuming you were eligible for Medicare during those past six months. Any contributions you make to your HSA could be subject to a penalty because you are not able to contribute to an HSA if you are enrolled in Medicare, even retroactively.

Working with a trusted advisor, such as a member of our team or your employer’s human resources team is highly recommended if you have an HSA account through your employer and want to understand your options leading up to your individual Medicare enrollment period. Proper advanced planning can save you time, stress and money while ensuring you meet the appropriate deadlines without incurring fees or penalties.

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