Actually, there is a lot of truth to that statement. I distributed $700 from the HSA Generally, making. As far as IRS is concerned, the total you can contribute during the year is determined by how many months of that year you were covered by an HDHP and not by other coverage including Medicare (with limited exceptions not relevant here), so in this case your 2021 contribution limit is 5/12 of $3650 for self-only or $7300 for family plus $1000 if Although Medicare enrollees cannot establish HSAs or make or receive contributions to their existing accounts, these individuals can withdraw any remaining balances in previously established accounts. Get Whats Yours: The Revised Secrets to Maxing Out Your Social Security.. That tax also does not apply to distributions made after an HSA account holder attains age 65, so even if the excess is not timely withdrawn, it can be withdrawn later without incurring the additional tax. If you meet these criteria, you wouldn't owe a late enrollment penalty when you sign up for Part B. No. Weban HSA in the months following your Medicare effective date. When you enroll in Medicare, your coverage may be retroactive. One important requirement here is that if the employee is the person who gets Medicare and becomes ineligible, the spouse must have set up an HSA of their own to make the couples allowable contributions. The rise of high-deductible employer health plans has created one of the most unpleasant surprises for older employees: anyone on Medicare is no longer allowed to make tax-free contributions to a health savings account (HSA). If you want employer health insurance, you will need to accept the likelihood that your out-of-pocket expenses could be substantial if you cant offset your spending with HSA funds. On July 1st, I changed to a non-HSA eligible plan. research, news, insight, productivity tools, and more. The Foundations projects and plans include providing factual information that improves understanding of the positive value of Social Security and Medicare and the current and long-term challenges these programs face, as well as providing interpretations by Certified Social Security Advisors through AMAC publications, workshops, webinars, podcasts, and telephone support. The odds of such an audit are very small, but if it does occur, you face getting hit with penalties and payment of what would be considered back taxes. For example, an HSA holder who files a Medicare application in July and is credited with six months of retroactive coverage will be unable to make any HSA contribution for that tax year; a November application will limit annual contributions to four-twelfths of the applicable annual limit (assuming the individual is otherwise HSA-eligible through April of that year). I contributed $3,000 to my HSA and my employer contributed $550. For 2017, an individual can contribute up to $3,400 to an individual HSA or $6,750 for a family HSA. But you don't have to return any money to your company. But if they became ineligible in July, say, then they would only be able to contribute $3,450 (six $575 monthly contributions). Employees over the age of 65 might have to reverse recent HSA contributions if they were not eligible to contribute. statement, 2019 Those contributions are added back into your taxable income for the year. The latter correction is only possible if contributions for the later year are less than the maximum allowable, so it is unavailable to individuals who are covered by Medicare (and therefore not HSA-eligible)their maximum allowable will be zero. Are Health Plans Required to Cover Emergency Contraceptives? The average tax savings on an $8,200 annual contribution to a Health Savings Account is about $200 monthly. The rule establishes a 6 month look-back period during which you receive retroactive Medicare coverage. For example, if you turn 65 on July 21, you are no longer eligible to contribute to an HSA as of July 1 (but you can continue to spend HSA funds on qualified expenses tax-free). In 2021, you can contribute up to $3,600 ($3,550 for 2020) if you're covered on a self-only plan and up to $7,200 ($7,100 for 2020) if you have a family plan. This raises the total limits of plan contributions to as much as $8,900. More people are electing to remain in the workforce past age 65. There is no early-enrollment option or richer benefits if you delay enrollment. industry questions. Jim lost eligibility for an HSA as of July 1, 2015. So, claiming Social Security doesnt always mess with your HSA only if youre 65 or older. If you are collecting Social Security when you are 65, you will be automatically enrolled in Medicare. On Twitter @PhilMoeller or via e-mail: [email protected]. The card will have your effective dates for both Part A and Part B. They need to be removed from your HSA and treated as taxable income on your annual tax return. brands, Social When you contribute funds to an HSA, they are pre-tax, which means you don't pay taxes on that money. To the further consternation of many such employees, anyone age 65 or older receiving Social Security benefits must, by law, also be signed up for Part A of Medicare. Have at it! Your employer deposits $2,000 annually into your account, and you contribute additional funds to reduce your taxable income and cover your medical, dental, and vision expenses. Question re HSA, Medicare Part A and the Six Month Lookback Rule. I'm not clear, though, on exactly when the 6-month clock starts. Lets further say that this persons employer has made a commitment to contribute, say, $1,500 during the year to the employees HSA. This occurs every year from January 1 through March 31, with coverage beginning on July 1. Employees are working longer, and the gap between the age for Medicare eligibility and the normal retirement age for Social Security is increasing. If you have made excess contributions and can withdraw them by the time your taxes are due, there will not be a penalty due to the IRS, Smith says. This is the case with non-employee plans and, as Smith notes, also what usually happens if the spouse of an employee with a company-enabled HSA wants to create their own HSA. When they first become eligible for Medicare, those older workers can face tax penalties for funding a Health Savings Account after 65 if they are not aware of Medicares six-month retroactive rule. I meant the tax filing deadline for the tax year you were talking about, which of course. Although not mentioned in the letter, earnings on excess contributions must also be distributed and reported as taxable income to avoid the excise tax, which generally continues until the excess is either distributed or deemed contributed tax-free in a later year. Taxpayers already receiving Social Security at their 65th birthday will automatically be signed up for Medicare. Suite. Corporate How do I appeal? Eligible individuals who are 55 or older (but younger than 65) can contribute an additional $1,000 in 2017. Can an HSA be used for Medicare premiums? If you end up retroactively enrolled in Medicare effective April 1, 2021, for example, your maximum 2021 contribution, based on your contract type, is $900 or $1,800, plus a $250 catch-up contribution (each of these figures is 25% of the $3,600, $7,200, and $1,000 contribution ceilings for 2021). WebTo avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare. Example 3 Enroll in Medicare After Age 65: Current employee turns age 62 and does not apply for Social Security retirement benefits. Explore all (On the six-month lookback, see "Medicare's Tricky Rules on HSAs After Age 65," JofA, July 2021). Use of editorial content without permission is strictly prohibited|All rights reserved, Maximizing Social Security Retirement Benefits, Why financial advisors cant live with or without Florida, SECs rejection of BlackRock bitcoin ETF unlikely to derail eventual approval, Advisors, be careful what you wish for with interest rates, Custom Indices Fuel Fixed Indexed Annuity Popularity, Staying in-plan: More 401(k)s keep retiree assets but more products needed, Student loan court ruling is a one-two punch for clients, Broker-dealer employee hit by SEC legal action. And distributions are tax-free if used for qualified medical expenses. Under current regulations, individuals who apply for Medicare Part A or Part B after reaching age 65 are automatically given six months of retroactive health coverage, You also cannot set up an HSA after you're enrolled in Medicare. If you contribute to your HSA after your Medicare coverage starts, you may have to pay a tax penalty. consulting, Products & 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. Let's review the issues and create a strategy. People tripped up by getting Part A of Medicare should take a close look at whether it makes sense for them to reject their employers health plan and, instead, purchase Part B and other Medicare coverage, including a Part D drug plan and either a Medicare Advantage Plan or a Medigap supplemental plan. and services for tax and accounting professionals. The earliest that a non-disabled person can enroll in Medicare is age 65. Accordingly, the employee is not eligible to contribute to an HSA as of age 67 , even though they delayed Medicare enrollment until age 68, because that is the date their Medicare Part A benefits become effective. If you contribute to your HSA during those 6 months, you may face a 6% excise tax and an income tax for those contributions. WebContributing to your HSA in the six months before you enroll in Medicare is a no-no, and there are penalties involved if you dont get the excess contributions out. WebThis is true whether you've been enrolled in an HSA-eligible health plan for 1 day or 185 days. No guarantees are made as to the accuracy of the information on this site or the appropriateness of any advice to your particular situation. Therefore, you must wait for Medicare's General Enrollment Period to sign up. The Interplay of Social Security and Medicare. Medigap isn't considered a qualified medical expense, so you cannot use your HSA funds to cover the costs of these plans without paying taxes. There may be a way around the six-month look back period, said Jon Smith, vice president of wealth planning at Stifel, Nicolas & Company in St. Louis. If you would like to continue contributing to your HSA, you shouldnt apply for Medicare, Social Security or Railroad Retirement Board benefits. Jims maximum contribution for 2014 is $2,175. A cloud-based tax Learn more in our Cookie Policy. When a person has an HSA and is 6 months away from signing up for Medicare, they should ideally stop contributing to their HSA. HSAs offer a triple tax-break. What happens to any excess contributions? If you dont report them, the IRS will only know about a problem if it audits you. You may pay a penalty (in the form of lifetime higher premiums) if you don't enroll when you're first eligible. Enrollment in Medicare is automatic when someone elects Social Security benefits and. Medicare and Social Security enter the HSA picture because Medicare insurance is not a high-deductible health plan. Websavings account (HSA). This most often happens where the non-employee spouse wishes to make an age-related catch-up contribution of $1,000. Although Medicare enrollees cannot establish HSAs or make or receive contributions to their existing accounts, these individuals can withdraw any First, enroll in Medicare at age 65. It's available in book and e-book forms from Amazon. The MSA plan also deposits money into a special type of savings account that can be used to pay for healthcare costs prior to meeting the deductible. Both You can sign up for an MSA if you want a similar program after you enroll in by classicjazzfan Tue Dec 18, 2018 11:59 am, Post Web1,000 x 12 = 12,000. The federal HSA limit for Jim is $4,350 ($3,350 individual HSA limit plus a $1,000 catch-up). This means that providers submit your eligible claims to your company's insurer first, then to Medicare. You should stop contributing to an HSA 6 months before you enroll in Medicare. Does it matter where you buy a Medigap plan? I will get back to spousal accounts in a bit. Medicare is disqualifying coverage, which means that you can no longer contribute to your Health Savings Account or accept the company's contribution. Clearly, that may not be the case when it messes with their HSA program. Social Security says I owe money for Medicare coverage I didnt get. But you did contribute. customs, Benefits & Timely withdrawals of excess contributions are not subject to the 20% additional tax for non-medical distributions. Period. They can continue to use any assets within an existing HSA account, but may not make new ones. My instructor today is Dorian Smith, a partner and health consultant who advises employers on these and other matters for the large Mercer consulting firm. You may be subject to back taxes on any contributions you made after your enrollment date. The last thing you want to happen is to enroll online, receive retroactive benefits and spend the next portion of your life trying to unwind the unexpected mess you have found yourself in.. Your Medicare Part A enrollment is retroactive, meaning that your coverage is extended back six months from the actual effective date. Florida native Eric Ruge lives by one rule: Do the right thing. Find Medicare Plans in 3 Easy Steps We can help find the right Medicare plans for you today Can I Use My HSA Funds to Pay My According to the Center for Medicare Advocacy, workers should stop contributing to an HSA up to six months prior to enrolling in Also, keep in mind that people who claim Social Security benefits before they turn 65 are too young to qualify for Part A. On the first day of the month you turn 65 and enroll in Medicare, you can no longer contribute to an HSA. Medicare Part A, which covers hospitalization, is free. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. Find the answers to all your clients' questions about Social Security and Medicare in this essential Quickfinder handbook by Thomson Reuters Checkpoint. Thomson Reuters/Tax & Accounting. Some of the confusion, unfortunately, came from me. by classicjazzfan Tue Dec 18, 2018 7:08 pm, Return to Personal Finance (Not Investing), Powered by phpBB Forum Software phpBB Limited, Time: 0.244s | Peak Memory Usage: 9.35 MiB | GZIP: Off. For 2022 HSA contributions are limited to $3,650 for individuals and $7,300 for family coverage. financial reporting, Global trade & Anyone with Medicare may not contribute to an HSA. WebYou, age 53, become an eligible individual on December 1, 2022. These plans offer everything Medicare Advantage plans must cover, which includes all Part A and Part B services. Ah, now the HSA plot becomes more interesting! I'm aware that HSA contributors who start Medicare after age 65 1/2 are considered to have been Medicare-eligible for the previous 6 months and must therefore stop HSA contributions at least 6 months prior to starting Medicare. As the letter notes, Medicare coverage typically begins with the month an individual turns age 65, but the actual commencement date depends on when the individual applies for Medicare (or Social Security or Railroad Retirement benefits that trigger Medicare coverage). Does Medicare Cover Naturopathic Medicine? I would not make any contributions to your HSA in the six months prior to applying for your Medicare Part B. Fortunately for you, you're aiming to start your Medicare coverage towards the end of the 2020 so there's plenty of time to get the exact dates sorted out. Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). While the rules for claiming Social Security will get a bit simpler starting in 2024, clients will continue to need advice on the best time to claim benefits. No, Smith says. EBIA Comment:Medicares interaction with HSA eligibility can be complex (see our Checkpointarticle), and Medicare retroactivity, in particular, is a trap for the unwary. If I know I am going to become ineligible for HSA contributions during a calendar year, can I front load that years allowable contributions before I become ineligible? #BenefitStrategies #LoveMyHSA #HSAday #HSA #HealthSavingsAccount #Medicare #HSAWendesdayWisdom #WilliamGStuart #TaxPerfect. Philip Moeller In addition, the Foundation serves all Americans in a variety of capacities, including provision of a source of education on the principles of American Free Enterprise, long-term retirement financial planning, and preparing for lifeand potential employmentafter retirement. Most medical and dental procedures count as qualified medical expenses, as do vision care, prescription drugs, long-term care insurance premiums and Medicare premiums. This is where Part A is backdated up to 6 months in the past. No. You are "actively" employed (or your spouse, if the coverage is through their employer), The company's coverage pays first, before Medicare would. 6) f. COBRA and the End of Employment (pg. If you do enroll earlier than you anticipated, you may have overcontributed to your account. It is at that earlier date when you are deemed to no longer be allowed to do an HSA contribution. Call 888-992-0738 to get started. The biggest thing to be aware of is that six-month lookback rule and to not pay into an HSA too late! Although the general rule is that individuals cannot take tax-free medical distributions for premium expenses, one exception is for Medicare premiums once the individual reaches Learn About Our Employee Benefits Compliance Services. In addition, $1,000 age-related catch up contributions are permitted for those aged 55 or older. When that happens, you and your employer must stop contributing to your HSA. Historically, getting Part A was a very good thing. Accordingly, Jims calculation is 6/12 X $4,350 = $2,175. Congress could change the HSA statute to remove enrollment in Medicare as a disqualifier for HSA eligibility (with or We'll discuss your situation and guide you through next steps. Jim lost eligibility for an HSA as of July 1, 2015. Webuse the Last-Month Rule to contribute up to the maximum ($3,650 or $7,300) and remain HSA-eligible through the testing period. The average monthly Social Security benefit in 2021 is about $1,543. Youre allowed to contribute $1,000 more, if you are 55 or older. In January, she went to the SSA office to enroll in Medicare Parts A & B during her Initial Enrollment Period (IEP). When you sign up for Medicare you will be enrolled retroactively for up to six months of benefits, or back to your 65th birthday if that has taken place within the last six months. Here's the problem when Social Security, Medicare, and Health Savings Accounts collide: Medicare is disqualifying coverage that prohibits you from funding a Health Savings Account. Medicare Part B, which covers outpatient services, carries a monthly premium. corporations. There is no premium to pay for MSA plans, but you must continue to pay your Part B premium. Youll receive our monthly newsletter, as well as special compliance alerts and invitations to our compliance webinars, Are Your Employees Asking About Weight-Loss Drug Coverage? They Will Be, Market Pulse Survey: Trends in Wellbeing & Health Management, 2023 Employee Benefits Compliance Webinars. Published on December 17, 2021 Key takeaways: Health savings accounts (HSAs) provide special tax advantages that can lower your healthcare costs. WebCall us at 855.999.7981 to get in touch with our team of experts for answers to any specific questions you have about your Health Savings Account and Medicare. But my colleague's friend knew enough to know that they can form a financially toxic interaction. A pro-rated contribution must be determined for the year in which Medicare becomes effective (see reverse side for more details). You can adjust your contributions prospectively or correct excess contributions after the fact to bring yourself in compliance with Health Savings Account rules. It's free! Yes, but you cant contribute to a health savings account (HSA) after you enroll in Medicare. Nice try, but you cant. To take advantage of that tax benefit, you must be enrolled in a high-deductible health plan and meet certain requirements. If you dont, you could end up facing penalties. However, if they contributed to an HSA during the months that were retroactively covered by Medicare and as a result had contributions in excess of the Late last week, a colleague in my Health Savings Account world forwarded me as series of questions from a friend of his who was trying to figure out the interplay of Health Savings Account contributions, Social Security enrollment, and Medicare retroactive coverage. You can always make direct deductible HSA contributions by the 2019 tax filing deadline. To avoid a tax penalty, you should stop contributing to your HSA at least [six] months before you apply for Medicare.. Individuals who delay applying for free Medicare Part A are covered retroactively to the month they attained age 65 or for six months, whichever is less. Unfortunately, the only way to reject Part A is to withdraw from receiving Social Security benefit payments. Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills. Browse the industries we serve by specialty focus, Browse the products we serve by categories. Integrated software According to the Center for Medicare Advocacy, workers should stop contributing to an HSA up to six months prior to enrolling in Medicare, as the Internal Revenue Service will consider an individual to have had Medicare coverage during those retroactive months. What do I do about health insurance? Plus, you'd have to pay for all healthcare costs out-of-pocket until you had coverage. According to Smith, it is legal and, in his view, even ethically appropriate for the employee to permit the employers full annual contribution. These expenses, the IRS says, include plan deductibles, co-payments, and other amounts, but not premiums.. Example: You're age 67 and working full-time. Medicare.gov recommends a more conservative approach. 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. governments, Business valuation & This includes private health plans and those sold through Affordable Care Act exchanges. This may require a phone appointment, or a trip to your local Social Security office so that you may be certain your wishes are carried out, he added. It is the responsibility of the employee to make sure there are no excess contributions [to the HSA], Smith says. Many online sources (including Medicare.gov) say it starts when one "files an application" for benefits, while others say it doesn't start until the "actual enrollment date. Youre not HSA-eligible Dec. 1, so you cant . Medicare 6-month retroactive benefit rule & HSA contribution eligibility. Important information. Additionally, they may offer extra benefits like: MSA plans do not cover Part D prescription drugs, so you must sign up for standalone Part D plan. In this example, the employee would contribute only $1,950 during the year, which is the maximum of $3,450 for six months, minus the employers $1,500 contribution. Subscribe for original insights, commentary and analysis of the issues facing the financial advice community, from the InvestmentNews team.