After reading my article HSA Contribution Limit For Two Plans Or Mid-Year Changes, a reader emailed me asking:
Cut through the gibberish. Can you have an HSA if you are on Medicare?
Partly because I was busy at the time, partly because I was a bit turned off by the “gibberish” characterization of my article, I simply answered “No.”
After I thought about it a little more, I realized the answer should more likely be yes rather than no. It depends on what the reader meant by “having” an HSA.
Medicare isn’t a high deductible health plan. After you are on Medicare, you are not eligible to contribute to an HSA but there is no problem if you keep an existing HSA or withdraw from it for medical expenses. You can have an HSA. You just can’t put more money into it.
Even not being able to contribute to an HSA after you are on Medicare isn’t entirely accurate. In one case you can contribute to an HSA after you are on Medicare.
Say you become 65 and you enroll in October. If you otherwise qualify from January to September, you can still contribute 75% of your limit for that year. You have until April 15 of the following year to make the contribution, well after you are already on Medicare.
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I view the HSA as an account to watch as if you die and leave it to a non-spouse the distributions to your heirs won’t qualify as tax-free withdrawals, even if the decedant had qualifying medical expenses. I am keeping records of my qualifying expenses and I am viewing the HSA as something to draw during the earlier retirement years versus the later years. It means giving up additional “tax free” compounding but better that than short circuit the tax free benefit (to a tax deferred benefit). I actually think it is a nice arrow to have in the quiver since I can try to manage my income a bit with my tax deferred withdrawals, use historical, documented qualifying medical expense withdrawals to supplement any cash needs on a tax free basis and save the Roth IRA’s for last (and perhaps my heirs).
So in effect its still a stealth IRA for me, but there is an ejector button planned.
Harry Sit says
That’s a good point. If you can manage it, empty it before you die. For me, when the medical expenses are low, I’m just taking a distribution every year to cover the expenses in that year. I lose a few hundred dollars worth of future compounding but I also close the chapter and not worry about keeping the $10 or $15 receipts forever.
Good to know I can still make a partial HSA contribution the year I turn 65, prior to my birthday month.
Since I have fewer years left than most of you to contribute to an HSA — I’m 59 — I’m not too concerned the account will grow so big I won’t be able to eventually empty it on health care expenses while in retirement. So I don’t bother too much about saving every small receipt now for reimbursement much later. (And if I miraculously never have any healthcare expenses to spend the HSA on beyond Medicare premiums, it would be hard to consider that a bad thing:) ).
After 8+ years of maximum HSA contributions (while paying current medical expenses out of pocket) I found that I had a drawer full of receipts that needed to be retained to support eventual future withdrawals and resulting 1099’s.
So I bought a ScanSnap scanner and loaded all into Evernote with cloud backup. Evernote allows me to catalogue receipts by year and employ keyword search. Shredded the originals but still had the required substantiation for any IRS questions that might arise.
Bonita Baldwin says
Can an HSA be used to pay your Medicare premiums? Supplemental insurance premiums? Part D premiums?
Harry Sit says
Yes if you are 65, regardless of which part (B, C, or D), but not supplemental.
Mike Zlatic says
I’m 68 and still employed, with employer-provided HSA health insurance for my wife and me. In January 2015 when my wife reached her FRA, I ‘filed and suspended’ my SSA benefits to allow my wife to file and collect her spousal benefit. However, to our astonishment, ‘filing and suspending’ enrolled both of us in Medicare Part A, backdated to June 2014. Due to our HSA, this Medicare Part A enrollment made 7 months of our 2014 HSA contributions ineligible, as well as the 1st few months of our 2015 HSA contributions. After speaking with several SSA and Medicare representatives and at the suggestion of one representative at the ‘800’ number, we each filed CMS Form 763 to terminate our Medicare Hospital (Part A) coverage, further requesting that our Medicare Part A coverage termination be backdated to June 2014. (We never had any Medicare claims.) However, our request was denied, which we just learned before Christmas. The denial letter indicated that the only way to terminate our Medicare Part A is to terminate our SSA enrollment and pay back all of my wife’s SSA spousal benefits, which is not a financially advantageous alternative.
So, in addition to withdrawing our 2015 HSA contributions, we are also now faced with withdrawing 7 months of 2014 HSA contributions and paying income taxes (and excise tax) on those ‘illegal’ 2014 contributions. While our ignorance of the law is not an excuse for our predicament, I just hope that our disclosure here will help others avoid this predicament. (However, I still don’t know why CMS Form 763 can’t be utilized to effect termination of Medicare Part A.)
I am late posting here, but the last post is very instructive and should be in the main body of the article. This is critical information when discussing HSAs and Medicare and is not generally known.
Enrollment in Medicare makes you an ineligible individual for HSA contributions. When you claim your Social Security benefits after the age of 65, you are automatically enrolled in Medicare retroactively up to six (6) months, but not before 65. There is no choice in this matter.
This makes you retroactively ineligible for HSA contributions and makes any of those contributions, excess contributions. If you are going to be on an HDHP/HSA plan after 65, you need to be aware of this. First, you should not enroll in Medicare Part A at 65 if you are delaying SS. You should stop HSA contributions up to six (months) before you enroll in Medicare.
You must know about this when you are going to be enrolled in an HDHP/HSA
Does this mean that you can’t transfer HSA funds to a new HSA at a different financial institution once you’re on Medicare?
Harry Sit says
You can transfer. You just can’t add new money.
If you don’t enroll in Medicare at 65, will you pay a penalty amount once you do enroll?
Harry Sit says
You must have a valid excuse for not enrolling in Medicare Part B and Part D when you are first eligible in order to avoid a late enrollment penalty. Medicare is very specific in which excuse they consider as valid.
Part B late enrollment penalty: https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-late-enrollment-penalty
Part D late enrollment penalty: https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/part-d-late-enrollment-penalty