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Medicare Coverage with a Health Savings Account (HSA)




How will Medicare coverage affect how I use my HSA?

According to Internal Revenue Service (IRS) code, once you begin participation in any type of Medicare coverage, you are no longer eligible to make contributions to your Health Savings Account. This includes coverage by Medicare Part A, Part B, Part C - Medicare Advantage Plans, Part D, and Medicare Supplement Insurance.


How do I know if I’m eligible to continue making HSA contributions?

The IRS distinguishes between being “eligible” for Medicare (which means you can continue making HSA contributions) and being "enrolled" in Medicare (which means you can no longer make HSA contributions).

Enrollment in Medicare typically occurs the month of an individual’s 65th birthday. If you are receiving Social Security payments and are over 65, it’s likely that you are already enrolled in Medicare Part A and can no longer contribute to your HSA. For guidance about your coverage, please visit www.Medicare.gov or speak with a Medicare advisor. 


Once I am covered by Medicare, can I continue to use the existing funds in my HSA?

Yes. Although you may no longer make HSA contributions once enrolled in Medicare, you may continue to withdraw funds from the account to help pay for medical expenses (deductibles, premiums, co-pays and/or co-insurance). Distributions you make from your HSA for qualified medical expenses are always tax free. Visit www.irs.gov to view a detailed list of qualified medical expenses. 


Is there a way I can remain HSA-eligible after age 65?

You may be eligible to continue contributing to your HSA after age 65 if:

  • you are still working;
  • you defer receiving Social Security benefits; and
  • you delay enrollment in Medicare Part A.

 

Delaying Medicare Part A at age 65 may not be advisable or possible based on your individual circumstances. It’s important to consult a Medicare expert before making a decision.

If you decline to take Medicare when you first qualify, you must prepare for if/when you decide to collect Social Security benefits later. Medicare Part A may be retroactive for up to six months, so tax penalties could apply to your HSA contributions unless you stop in advance. 


How much can I contribute to my HSA in the year I begin Medicare coverage?

Under IRS code, if you intend to enroll in Medicare Part A, you are permitted to make HSA contributions until the month prior to your 65th birthday. The total amount you can contribute for the year must be prorated by the total number of months you were HSA eligible.

Example: Sarah will turn 65 in August of this calendar year and plans to enroll in Medicare Part A.

  • Sarah may make contributions into her HSA from January through July. For this year, Sarah can contribute a prorated amount of 7/12ths of the annual HSA contribution limit.
  • The contribution limit for this year would be based on Sarah’s healthcare plan type (individual vs. family coverage), and she may include the $1,000 catch-up contribution in her prorated calculation since she is over age 55 

If I am no longer HSA-eligible due to Medicare coverage, can my spouse open an HSA?

Your spouse may be eligible to open an HSA and make contributions if s/he:

  • is covered by your High-Deductible Health Plan;
  • is under age 65; and
  • meets all other IRS eligibility criteria for owning an HSA. 

Your spouse may contribute up to the annual maximum based on your healthcare plan type (individual vs. family coverage). However, it is not common practice for an employer to make contributions into your spouse’s HSA. 

For more details on Medicare coverage, visit www.Medicare.gov. For additional guidance on Health Savings Accounts, visit the IRS website at www.irs.gov.




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