Does Medicare enrollment impact my eligibility for a Health Savings Account?
- In order to open an HSA, you cannot have any health insurance other than an HSA-eligible high-deductible health plan. Since Medicare Parts A and B are both considered another type of health insurance, enrolling in either would make you ineligible to open a new account and affect your ability to contribute.
Can I delay Medicare enrollment so that I can continue contributing into my HSA?
- If you want to continue contributing to your HSA after age 65, you should not enroll in any part of Medicare. Then you can continue to make tax-free contributions to your HSA even past age 65.
What is an HSA “catch up” contribution?
- If you're 55 or older during the tax-year, you may be eligible to make an additional $1,000 catch-up contribution to your HSA annually.
What is the penalty for having Medicare and an HSA?
- You would pay taxes on any HSA funds that you contributed and took deductions for, as well as possible penalties. If your contributions were considered excess contributions by the IRS, they would be subject to an additional 6% in excise tax when you withdraw those funds.
Can I use HSA funds to pay for Medicare premiums?
- Yes, you can pay for Medicare premiums, deductibles, copays and coinsurance from existing funds in a HSA. You cannot, however, pay Medigap premiums with these funds.
Can my spouse continue contributing to the HSA even if I don’t?
- Yes, as long as your spouse is covered by the qualifying insurance, he/she can contribute up to the individual maximum into the account in his/her name.
How do I correct an ineligible HSA contribution?
- Contact your HSA account administrator and request an HSA distribution form to remove the contribution prior to the tax deadline (generally April 15th). If you have already spent all of the HSA funds and there isn’t a contribution to correct, your ineligible contributions would not be deductible from your gross income. Instead, they would be considered an excess contribution, making them potentially subject to a 6% excise tax on the contribution and any earnings.
When preparing for Medicare, when should I stop contributing to my HSA?
- If you decide to enroll in Medicare after delaying it, you should stop contributing to your HSA at least six months in advance. Otherwise you may be hit with a tax penalty, because Part A of Medicare provides six months of retroactive coverage upon enrollment.
Baird does not provide tax or legal advice.