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Navigating Medicare and Your HSA

Medicare

As you approach age 65, it’s crucial to be aware of how Medicare eligibility may impact your Health Savings Account (HSA). Once you enroll in Medicare, you’re no longer permitted to contribute to your HSA due to IRS rules. This could lead to potential tax penalties if you continue to deposit money in your HSA after enrolling in Medicare.

The M3 Elevate Medicare team receives these frequent questions, which can help you decide when it’s the right time to stop contributing to your HSA and how to manage & utilize your account in the future.

For additional clarification or to discuss your specific circumstance, please contact your M3 Elevate account executive. Our experienced professionals can help you navigate the complexities of Medicare and determine the best solutions for your individual needs.

I’m nearing my Medicare eligibility, what should I do about my HSA?

As you approach Medicare eligibility, it’s important to consider your HSA. While you can still use your HSA, keep in mind that you cannot establish or contribute to it during any month you’re enrolled in Medicare. Therefore, it’s best to stop contributing to your HSA before enrolling in Medicare.

To avoid potential tax penalties, halt contributions to your HSA for six months before applying for Social Security retirement benefits. When you sign up for retirement benefits, you’ll receive six months of back pay, and your enrollment in Part A will also be backdated by six months. Under IRS rules, that leaves you liable to pay six months of tax penalties on your HSA.

Can I enroll in an HSA if I am enrolled in Medicare?

No. Once you enroll in Medicare Part A and/or Part B, you can no longer set up or contribute pre-tax dollars to an existing HSA. To contribute pre-tax dollars to an HSA, you cannot have any health insurance plan other than a High Deductible Health Plan (HDHP).

What are the consequences of contributing to my HSA while enrolled in Medicare?

Medicare beneficiaries who continue to contribute funds to an HSA may face IRS penalties including payment of back taxes on their tax-free contributions and account interest, excise taxes, and additional income taxes.

Can I use my HSA dollars if I’m enrolled in Medicare?

Yes! If you had an HSA before enrolling in Medicare, you can keep it and use it to cover medical expenses such as deductibles, premiums, copayments, and coinsurance. The account will remain tax- free if you use the funds for qualified medical expenses. The IRS defines qualified medical expenses, which include Medicare premiums and copays. This, in turn, provides a useful way for Medicare beneficiaries to utilize any unused HSA funds.

What should I know about my HSA and being enrolled in Medicare Part A?

If you have an HSA and are enrolled in Medicare Part A, there are a few important things to keep in mind:

1.If you sign up for Part A at age 65 or later and have not yet applied for Social Security retirement benefits, you can withdraw your application for Part A.

This will give you the opportunity to continue using your HSA.

To withdraw your Medicare Part A application, we recommend contacting the Social Security Administration at 800. 772.1213.  

Note: There are no penalties or consequences, and you can reapply for Part A later if you choose to.  

2.If you are receiving Social Security benefits, you are automatically enrolled in Part A and cannot contribute to your HSA.

If you want to opt out of Part A and continue using your HSA, you will need to repay all the money you’ve received in Social Security payments, as well as the amount that Medicare has spent on your medical claims. Once this occurs, you can apply to drop out of Part A, but this means you will no longer be entitled to Social Security or Medicare. You can always reapply for both programs in the future, in the event you lose your HSA coverage.

I am eligible for Medicare this year, but I don’t intend to enroll until I retire. If I stay on my employer’s insurance plan in the meantime, can I still contribute to my HSA?

Yes, you can continue to contribute to your HSA if you are eligible for Medicare but haven’t enrolled in it. However, when you decide to enroll in Medicare (even if it’s just Part A), you’ll no longer be eligible to make any form of contribution/deposit to your HSA.

What if I am covered under my spouse’s HSA from work?

If you are currently covered under your spouse’s HSA at work, the IRS rule will only affect your spouse (the one who has an HSA through their employment), because they are the one who contributes to an HSA from their before-tax earnings from work. The rule does not affect covered spouses over age 65, who can continue to use funds from the working spouse’s HSA for approved medical purposes.

Key Takeaway:

When it comes time to enroll in Medicare, individuals are no longer allowed to contribute to HSAs due to IRS rules. Understanding the impact of Medicare on your HSA is essential for making informed decisions regarding your healthcare and finances. As you approach age 65, consider seeking guidance from your M3 Elevate account executive to ensure you are managing your HSA effectively.

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Please Note:
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all your options.

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