Medicare and Health Savings Accounts: Here’s what you need to know.
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 you may no longer contribute to your HSA once you enroll in any part of Medicare.
If you decide to work past age 65 and delay your Medicare coverage, this contribution rule applies at that point, as well. You must stop contributing to your HSA up to six months before you sign up for Medicare Part A or you could be subject to a tax penalty.
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. However, it's important to note that premiums for Medicare Supplement plans are not eligible to be paid with HSA dollars. 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.
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.
HSAs and Delaying 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 sign up for Medicare Part A. This is because Medicare Part A provides six months of retroactive coverage from the time you apply for Social Security benefits, assuming you were eligible for Medicare during those six months. Depending on the date you enroll in Part A, any contributions you make to your HSA after enrolling will likely be subjected 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, like a RetireMed advisor, is highly recommended if you have an HSA account through your employer and want to understand your options leading up to your Medicare Initial Enrollment Period. Proper advanced planning can save you time, stress, and money while ensuring you meet the appropriate deadlines without incurring fees or penalties.
Call us at 937.915.3563 to get in touch with our team of experts for answers to any specific questions you have about your Health Savings Account and Medicare. If you didn't stop contributing to your HSA within the appropriate time frame, no problem! We'll discuss your situation and guide you through next steps. We look forward to helping you!