Should You Give Up Your Hsa
If youre still working at age 65 and are covered by a group health plan at work, or have a spouse whose group health plan youre covered by, you dont need to sign up for Medicare .
Normally, eligible Medicare enrollees who fail to sign up during the initial seven-month enrollment period leading up to and following their 65th birthday face lifelong Part B premium surcharges for enrolling late. That penalty, however, doesnt apply if you have group health coverage in place when you turn 65. Rather, you get a special enrollment period for Medicare that begins once you separate from your employer or once your group coverage ends whichever comes first.
That said, many 65-year-olds who have group health coverage sign up for Medicare Part A only, since theres generally no premium attached to it. This way, Medicare serves as secondary insurance for hospital care. The main reason not to sign up for Part A when youre still covered by a group health plan is if youd like to continue funding an HSA, since you cant do so once enrolled.
HSAs offer immediate tax savings, since contributions exclude a portion of your income from taxation the year theyre made. And the more money you put into your HSA, the more funds youll have available in retirement, when your medical costs start building. Therefore, if youre eligible for an HSA, it often pays to delay your Medicare enrollment and continue reaping that benefit.
Hsa Payments & Reimbursements
What if you still have funds in an existing HSA when you enroll in Medicare? You can still use those funds tax-free to pay for qualified medical expenses. Enrolling in Medicare does not affect your ability to use the funds already in your account. You can continue to use those funds to pay for eligible expenses for the rest of your life or as long as you have a balance in your account. You can even use the funds to pay for Medicare premiums, like your Medicare Part B or Part D prescription drug coverage premiums, as well as Medicare Advantage plan premiums. However, you cannot use HSA funds to pay for Medicare supplement insurance or Medigap.
What Expenses Are Tax Free After I’m On Medicare
At any age you can withdraw HSA money tax-free to pay your health insurance deductibles, copayments, dental care, hearing care, prescription and over-the-counter drugs, vision needs and other qualified health care expenses that insurance doesnt cover.
You can also withdraw money tax-free from an HSA to pay a portion of eligible long-term care insurance premiums based on your age. You can withdraw up to $4,510 for long-term care premiums in 2022 if youre age 61 to 70 and $5,640 if youre older than 70. Your spouse can withdraw up to that amount, too, based on his or her age. The eligible withdrawal limits for long-term care premiums are smaller at younger ages.
After you turn 65, you can also withdraw money tax-free from your HSA to pay premiums for Medicare Part B, Part D prescription drug coverage and Medicare Advantage plans, but not Medicare supplemental plans, also called Medigap. You also can pay your Part A premiums with HSA money if you or your spouse did not work long enough to be eligible for premium-free Part A coverage.
If you have your premiums paid directly from your Social Security benefits, you can withdraw money tax-free from your HSA to reimburse yourself for those expenses. Just remember to keep records of the costs.
Keep in mind
Already receiving Social Security? If youre getting Social Security benefits, youre automatically enrolled in Part A and you dont have the option to delay.
You May Like: Is Dental Care Included In Medicare
Next Steps To Consider
With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.
The information provided herein is general in nature. It is not intended, nor should it be construed, as legal or tax advice. Because the administration of an HSA is a taxpayer responsibility, you are strongly encouraged to consult your tax advisor before opening an HSA. You are also encouraged to review information available from the Internal Revenue Service for taxpayers, which can be found on the IRS website at IRS.gov. You can find IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, and IRS Publication 502, Medical and Dental Expenses, online, or you can call the IRS to request a copy of each at 800-829-3676.
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
Q: Can I Still Use My Hsa Funds If I Have Medicare Coverage / Can I Use My Hsa To Pay For Medicare Premiums
A:You can still use your HSA funds if you have Medicare coverage. You may withdraw funds from your HSA at any time, regardless of whether you are eligible to contribute to your HSA.Once you reach age 65, you have more options for using your HSA funds. For example, you may use your funds, free of tax and penalty, for qualified medical expenses as well as to pay for Medicare Parts A, B, D premiums and Medicare HMO premiums. However, premiums for a Medicare supplemental policy, such as Medigap, are not eligible expenses.
Reaching 65 years of age also enables you to use your funds for non-qualified medical expenses, including Medicare Supplements, with no penalties. Instead, these funds will be taxed as ordinary income.
Also Check: Does Medicare Pay For An Oxygen Concentrator
More Key Facts Affecting Medicare And Hsa Coordination
It’s simplest to lay out the facts followed by an example to best help taxpayers and their advisers apply the nuances to specific situations:
Example 1: To illustrate how the six-month lookback period operates, let’s say that A plans to work until age 67 in order to reach her full Social Security retirement age and opts to defer Medicare until then as well in order to continue funding her HSA. If A’s birthday is July 1 or later that year, she simply needs to stop any contributions to an HSA during the calendar year of retirement six months prior to her birthday.
Example 2: Using the above example, except for changing A’s retirement date to April 1, 2021, her Medicare enrollment with the six-month lookback would actually be Oct. 1, 2020. If A fully funded her HSA by the maximum allowable amount for 2020, she would need to recalculate for the two months of ineligibility then take steps to remove the excess contributions from the account. If A had already filed her 2020 income tax return before removing the excess contributions, an amendment may be in order as well to account for the loss of the tax deduction taken for ineligible contributions.
The Good News: You Can Keep Using Your Hsa Funds
Now for the good news! Even after you enroll in Medicare and stop HSA contributions, you are still able to withdraw funds tax-free for qualified medical expenses. You can even use your HSA to pay for some Medicare expenses including your Medicare Part B, Part D and Medicare Advantage plan premiums, deductibles, copays and coinsurance.
Note: HSA funds cannot be used to pay for Medigap premiums.
Also Check: Does Medicare Cover Ear Cleaning
If Im Enrolling In Medicare Later This Year How Much Can Be Contributed To My Hsa
Health Savings Account beneficiaries can contribute until the first day of the month Medicare is sufficient. Its your responsibility to prorate both your regular contribution and the catch-up contribution if applicable.
Get A Free Quote
Find the most affordable Medicare Plan in your area
To determine the prorate maximum contribution, add the IRS maximum plus the catch-up amount. Then, divide that number by 12 months and multiply by the number of months you wont have Medicare.
- Was this article helpful ?
Eligibility For Hsa Contributions
There are lots of quirks involved when determining whether a taxpayer is eligible to make contributions to an HSA , most of them having to do with health care plan design. But a separate rule that often trips up taxpayers is that HSA contributions are disallowed when a taxpayer has other coverage in addition to an HSA-eligible plan ).
This applies to taxpayers whose other coverage is TRICARE . It also applies to anyone whose spouse is using a flexible spending account, which is technically other coverage under the HSA rules are the exception here and are typically offered alongside HSAs when available). Where this can get really sticky is when a taxpayer works past age 65 with HSA-eligible group health coverage.
Don’t Miss: How Do You Pay Medicare
Potential Tax Liabilities When You Use An Hsa And Have Medicare
When you contribute funds to an HSA, they are pre-tax, which means you don’t pay taxes on that money.
However, if you continue to contribute to your HSA after you enroll in Medicare, there may be tax penalties depending on your situation.
- You may be subject to back taxes on any contributions you made after your enrollment date. Those contributions are added back into your taxable income for the year.
- Contributions made after enrollment could be considered “excess” by the IRS, which are taxed an additional 6 percent when withdrawn.
- If you enroll in Medicare during an HSA testing period, or the full year after you enroll in an HSA midyear, you’ll pay back taxes and an additional 10 percent tax.
Both Medicare and the IRS recommend you stop contributing to your HSA at least 6 months before enrolling to help avoid tax penalties.
Consider Your Options Carefully
In summary, once you get Medicare, youre no longer able to keep contributing to your HSA. You are still able to use the HSA funds for qualified medical expenses, including some Medicare costs. Knowing this, its important to think carefully about your Medicare enrollment decisions once you become eligible.
Recommended Reading: Does Medicare Part B Cover Blood Tests
Hsas Working Alongside Medicare
When a person enrolls in Medicare, they can no longer contribute to their HSA and enjoy the benefits of contributing non-taxed income and earning non-taxed interest.
Even though contributions would no longer be possible, individuals may keep their HSA and use it to pay for Medicare-related expenses.
Some people will contribute a significant amount to their HSA in preparation for their retirement. When they retire and start to receive Medicare benefits, they can then use the HSA to pay for health expenses.
What Is The Most Common Way People Mishandle Hsa Accounts
The most common mistake happens when people dont remember to stop contributing to their HSA accounts until they are about to enroll in Medicare. In other words, they forget about the six-month lookback period and just go on depositing money for too long into their HSA accounts.
What if that happens to you? CoverRights advice is that in general, contributing too late is not a big problem. You should call your HSA plan administrator and simply ask to have the contributions that were made too late taken out, so you dont break any rules.
Recommended Reading: What Are Medicare Parts C And D
More From Your Money Your Future:
Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.
The bill does come with a tradeoff: It would remove the ability to use HSA withdrawals to pay for Medicare premiums something that’s currently allowed. It also would eliminate penalty-free withdrawals for nonmedical expenses in the 65-and-older crowd as now permitted.
At the end of 2021, there were 32 million of these accounts up 8% from 2020 holding an aggregate $98 billion, according to a recent report from investment consultant Devenir. Annual contributions to HSAs for 2022 are limited to $3,650 for someone with individual coverage and $7,300 for family coverage. People age 55 or older can put an extra $1,000 in per year.
HSAs come with a triple tax benefit: Contributions are tax-deductible, earnings are tax-free, and withdrawals also are untaxed as long as they are used to cover qualified medical expenses. Roughly 28% of workers are enrolled in such a plan, up from 17% in 2011, according to 2021 research from the Kaiser Family Foundation.
However, you can only contribute to an HSA if you have a so-called high-deductible health care plan and Medicare coverage does not fall in that category. Beneficiaries are permitted to use their HSA funds to pay for medical expenses, yet cannot set up a new HSA or contribute to one.
If You Want To Understand More About Hsa In Retirement And Medicare Here Are Answers To Some Of The Most Frequently Asked Questions:
- Premiums for Medicare Parts B, D and Medicare Part C
- Medicare deductibles, co-pays and co-insurance
- Dental and vision expenses
- Long-term care insurance premiums
- Over-the-counter medical equipment and supplies
- Over-the-counter medicine
- Increase your payroll deduction.
- Make a contribution to your account on the member website.
- Mail a contribution form with a check.
- You are not yet enrolled in Medicare.
- Youre covered on a high-deductible health plan.
- Youre not someones tax dependent.
- Has elected an HSA-qualified health plan for the current coverage year.
- Is not covered by another health plan.
- Does not receive any military health care benefits.
- May not be claimed as a tax dependent on another persons tax return.
- Is not enrolled in Medicare.
- Speak with your financial advisor.
Tools & Support
Recommended Reading: What Age Do You Sign Up For Medicare Part B
Using An Hsa For Medicare Expenses
You cannot sign up for an HSA if you are enrolled in Medicare. You also cannot contribute funds to a pre-existing account and must stop making contributions at least six months before you enroll or otherwise face financial penalties.
However, that does not mean you cannot use a pre-existing account to pay off your Medicare expenses.
Currently, you can use a health savings account to pay for a number of Medicare expenses. Qualifying expenses include monthly premiums for Part A, Part B, Medicare Advantage, and Part D. Coinsurance, copayments, and deductibles for Parts A through D can also be paid for this way.
Non-Medicare expenses that qualify include premiums for long-term care insurance and over-the-counter medications .
Keep in mind that monthly premiums for Medicare Supplement Plans do not qualify under HSA rules.
If You Continue To Work After Age 65 And You Or Your Employer Is Still Contributing To An Hsa:
- Stop making contributions to your HSA up to 6 months before applying for Medicare Part A only or Part A and Part B or starting your Social Security retirement benefits.
- When you receive Social Security retirement benefits, your Part A coverage is back-dated 6 months to give you 6 months of back-dated benefits. If you contribute to your HSA during those 6 months, you may face a 6% excise tax and an income tax for those contributions.
- This “6-month lookback” starts when you enroll in Medicare or begin your Social Security retirement benefits. However, you can withdraw those contributions by the end of the tax year to avoid the excise tax.
This HSA restriction leads some working past age 65 to defer Medicare and maintain their current employer-based health insurance coverage so they can keep contributing to their HSA until they retire.
Tip: Remember, after you enroll in Medicare, you can use existing funds in your HSA for qualified medical expenses, including your monthly premiums for Parts A, B, C, and D .
Recommended Reading: How Do I Find Out My Medicare Number
What Does A Medicare Msa Plan Cover
Since Medicare savings account plans are Medicare Advantage plans , the network of doctors and healthcare coverage may be more comprehensive than original Medicare.
A Medicare MSA doesnt automatically cover vision, dental, prescription drugs, or hearing aids. You can add these types of coverage to your plan, but theyll require an additional monthly premium.
To see which extra insurance plans are available in your area if you have an MSA, contact your State Health Insurance Assistance Program .
Cosmetic and elective procedures arent covered by a Medicare MSA p an. Services that havent been designated as medically necessary by a doctor such as holistic healthcare procedures, alternative medicine, and nutritional supplements arent covered. Physical therapy, diagnostic tests, and chiropractic care may be covered on a case-by-case basis.
Can Hsas Pay Medicare Premiums
If a person has their Medicare premiums automatically deducted from their Social Security benefits, they can reimburse themselves by withdrawing the equivalent amount from their HSA.
Most HSAs have online capabilities where a person can automatically deduct the expense or request a check for the reimbursement amount.