Medicare [Can I contribute to a Health Savings Account?]

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jazzbeat101
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Medicare [Can I contribute to a Health Savings Account?]

Post by jazzbeat101 » Sun Nov 12, 2017 6:07 pm

Hi,

I am turning 65 this year. I plan to continue working for the next couple of years (or longer if possible) and I get my medical insurance through my employer.

Do I have to sign up for Medicare Part A? (hospitalization coverage) I understand it's free but it's not clear to me what the advantages and disadvantages of signing up?

In particular, will signing up to Medicare Part A affect my ability to contribute towards my Health Savings Account (HSA) ?

Thank you for your time!

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GerryL
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Re: Medicare

Post by GerryL » Sun Nov 12, 2017 6:21 pm

If you want to contribute to an HSA, you cannot be on any part of Medicare, A and/or B.

Also, when you finally do get to the point that you need to sign up for Medicare (e.g., end of employment or end of employer-provided coverage) you will want to make sure you stop making HSA contributions 6 months prior. When you sign up for Part A and are already past the eligibility age, they will back-date your start date up to 6 months.

Of course, this is all assuming that you work for an employer with at least 20 employees.

TravelforFun
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Re: Medicare

Post by TravelforFun » Sun Nov 12, 2017 6:36 pm

jazzbeat101 wrote:
Sun Nov 12, 2017 6:07 pm
Hi,

I am turning 65 this year. I plan to continue working for the next couple of years (or longer if possible) and I get my medical insurance through my employer.

Do I have to sign up for Medicare Part A? (hospitalization coverage) I understand it's free but it's not clear to me what the advantages and disadvantages of signing up?

In particular, will signing up to Medicare Part A affect my ability to contribute towards my Health Savings Account (HSA) ?

Thank you for your time!
I'm in your shoes and even though I don't have to sign up for any part of Medicare, I went ahead and signed up for Part A a couple of months ago because it's free and HSA is not a factor (no high deductible insurance plan at work).

TravelforFun

prd1982
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Re: Medicare

Post by prd1982 » Sun Nov 12, 2017 6:37 pm

Be sure to check with your employer about their coverage. Their plan may require you to sign up for at least part A.

TravelforFun
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Re: Medicare

Post by TravelforFun » Sun Nov 12, 2017 9:31 pm

prd1982 wrote:
Sun Nov 12, 2017 6:37 pm
Be sure to check with your employer about their coverage. Their plan may require you to sign up for at least part A.
We should and I did. Mine (a large-size company) doesn't require me to sign up.

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BolderBoy
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Re: Medicare

Post by BolderBoy » Sun Nov 12, 2017 9:35 pm

GerryL wrote:
Sun Nov 12, 2017 6:21 pm
Also, when you finally do get to the point that you need to sign up for Medicare (e.g., end of employment or end of employer-provided coverage) you will want to make sure you stop making HSA contributions 6 months prior.
Why? If you otherwise qualify for an HSA, you can contribute thru the month before you start Medicare (but not after).
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

kd2008
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Re: Medicare

Post by kd2008 » Sun Nov 12, 2017 9:39 pm

OP, Here is a good primer: https://www.medicareinteractive.org/get ... d-medicare
Finally, if you decide to delay enrolling in Medicare, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty.
jazzbeat101 wrote:
Sun Nov 12, 2017 6:07 pm
Hi,

I am turning 65 this year. I plan to continue working for the next couple of years (or longer if possible) and I get my medical insurance through my employer.

Do I have to sign up for Medicare Part A? (hospitalization coverage) I understand it's free but it's not clear to me what the advantages and disadvantages of signing up?

In particular, will signing up to Medicare Part A affect my ability to contribute towards my Health Savings Account (HSA) ?

Thank you for your time!
No, you do not have to sign up for part A if your employer is a large employer and provides creditable coverage. Please get this in writing from the employer's insurance company.

Part A is free for most and has a deductible under $1500 and covers hospitalization when admitted. Just being in hospital over night is not enough. You need to be admitted.

You cannot contribute to an HSA if you have part A.

If your spouse, considering you have one, is not covered by medicare but by your employer coverage, he or she may open his or her own hsa and contribute if you have medicare part A. Even then no catch up contribution on your behalf may be made. So your spouse couldnt contribute your $1000 catch up contribution to his or her account.

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GerryL
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Re: Medicare

Post by GerryL » Sun Nov 12, 2017 10:30 pm

BolderBoy wrote:
Sun Nov 12, 2017 9:35 pm
GerryL wrote:
Sun Nov 12, 2017 6:21 pm
Also, when you finally do get to the point that you need to sign up for Medicare (e.g., end of employment or end of employer-provided coverage) you will want to make sure you stop making HSA contributions 6 months prior.
Why? If you otherwise qualify for an HSA, you can contribute thru the month before you start Medicare (but not after).
Because you don't qualify to contribute to an HSA if you are on Part A and they will magically set your Part A coverage up to 6 months before you actually applied. It's silly, I know. And they don't even tell you they are doing it. They seem to have some kind of time machine and think that you do, too. (I am not aware that anyone at the IRS actually investigates these cases.)

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LadyGeek
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Re: Medicare [Can I contribute to Health Savings Account?]

Post by LadyGeek » Sun Nov 12, 2017 10:34 pm

This thread is now in the Personal Finance (Not Investing) forum (Medicare). I retitled the thread for clarity.

Thanks for the heads up, as the wiki was missing this important point - no HSA contributions if you have Medicare.

It's fixed. See: Medicare "Brief overview and history"
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Spirit Rider
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Re: Medicare

Post by Spirit Rider » Sun Nov 12, 2017 10:35 pm

BolderBoy wrote:
Sun Nov 12, 2017 9:35 pm
GerryL wrote:
Sun Nov 12, 2017 6:21 pm
Also, when you finally do get to the point that you need to sign up for Medicare (e.g., end of employment or end of employer-provided coverage) you will want to make sure you stop making HSA contributions 6 months prior.
Why? If you otherwise qualify for an HSA, you can contribute thru the month before you start Medicare (but not after
Not necessarily true.

If you enroll in Medicare after age 65 whether because you start receiving Social Security benefits or you enroll voluntarily. You are retroactively enrolled in Medicare by up to 6 months. but not before age 65. This retroactive Medicare enrollment is automatic and can not be declined.

This makes you retroactively ineligible for an HSA. If you have contributed during this period you have an excess contribution that must be removed. The better option is to knowingly stop HSA contributions at the correct point.

Spirit Rider
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Re: Medicare [Can I contribute to Health Savings Account?]

Post by Spirit Rider » Sun Nov 12, 2017 11:15 pm

LadyGeek wrote:
Sun Nov 12, 2017 10:34 pm
This thread is now in the Personal Finance (Not Investing) forum (Medicare). I retitled the thread for clarity.

Thanks for the heads up, as the wiki was missing this important point - no HSA contributions if you have Medicare.

It's fixed. See: Medicare "Brief overview and history"
That is not sufficient. It does not cover the main point we have been covering. The up to 6 month retroactive HSA disqualification. From the Medicare & You 2018 handbook:

Health savings accounts (HSAs)—You can’t contribute to your HSA once your Medicare coverage begins. However, you may use money that’s already in your HSA after you enroll in Medicare tohelp pay for deductibles, premiums, copayments, or coinsurance. If you contribute to your HSA after your Medicare coverage starts, you may have to pay a tax penalty. If you’d like to continue contributing to your HSA, you shouldn’t apply for Medicare, Social Security, or Railroad Retirement Board (RRB) benefits.

Remember, premium-free Part A coverage begins 6 months back from the date you apply for Medicare (or Social Security/RRB benefits), but no earlier than the first month you were eligible for Medicare. "To avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare."


To clarify this last sentence so it doesn't confuse people. If you start Social Security or enroll in Medicare before age 65 1/2, you only have to stop contributing to an HSA for the month prior to Medicare eligibility.

This section doesn't give the full measure of the danger if you do not remove any excess contribution caused by the retroactive Medicare enrollment. The excess contribution will be subject to a 6% excise tax every year on the excess until the HSA account drops below the excess amount and then on the balance until it is depleted.

jazzbeat101
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by jazzbeat101 » Mon Nov 13, 2017 7:33 pm

Thank you all for your great replies!

If I unexpectedly lose my job next June (2018) and sign up for medicare immediately, I will have 6 month of contributions.
How difficult would it be to retrieve the money out of the HSA account in order to avoid the penalty ?

Spirit Rider
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Spirit Rider » Mon Nov 13, 2017 8:15 pm

It is relatively easy to request the return of the excess contributions and earnings from the HSA custodian, with typically a $25 fee. You have until your tax filing deadline including extensions to to do so.

If the contributions were by payroll deduction, you will have to report the excess contributions as other income in the year of the contribution. If they were direct contributions, you just don't claim the deduction. In either case the earnings are taxable income in the year returned.

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LadyGeek
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by LadyGeek » Mon Nov 13, 2017 10:27 pm

Spirit Rider wrote:
Sun Nov 12, 2017 11:15 pm
LadyGeek wrote:
Sun Nov 12, 2017 10:34 pm
This thread is now in the Personal Finance (Not Investing) forum (Medicare). I retitled the thread for clarity.

Thanks for the heads up, as the wiki was missing this important point - no HSA contributions if you have Medicare.

It's fixed. See: Medicare "Brief overview and history"
That is not sufficient. It does not cover the main point we have been covering. The up to 6 month retroactive HSA disqualification.
Sorry, I missed the main point. Thanks, your explanation was helpful.

I have added a new section to the wiki's HSA page: Health savings account (Medicare)

In: Medicare (Brief overview and history), the link now goes to the HSA page's Medicare section.

Let me know if anything needs to be changed.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Spirit Rider
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Spirit Rider » Mon Nov 13, 2017 10:45 pm

That looks great.

Mickey7
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Mickey7 » Mon Nov 13, 2017 10:59 pm

I just checked with HR and my effective end date of my school contract will be July 7th, Theoretically I could have 6 months, however since I will have to apply for Medicare 2 months before I retire this should mean that only 4 months could be claimed. Since though the claim would be retroactive for 6 months that means that I would have over paid last year by 2 months. So I will need to remove those 2 months by claiming them. (I could do so with dental expenses for this year) and could not claim the 4 months in 2018, correct? Whew.

Spirit Rider
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Spirit Rider » Mon Nov 13, 2017 11:47 pm

The retroactive period is from the effective date of Medicare enrollment, not from when you apply.

Could you answer a few questions. Will July 1st or August 1st be the effective Medicare enrollment date? Will you be at least 65 and 6 months during that month? If not how many months?

Mickey7
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Mickey7 » Mon Nov 13, 2017 11:59 pm

It would be Aug 1st and I would be 66 and 6 months.

Thank you

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BolderBoy
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Re: Medicare

Post by BolderBoy » Tue Nov 14, 2017 9:55 am

Spirit Rider wrote:
Sun Nov 12, 2017 10:35 pm
BolderBoy wrote:
Sun Nov 12, 2017 9:35 pm
GerryL wrote:
Sun Nov 12, 2017 6:21 pm
Also, when you finally do get to the point that you need to sign up for Medicare (e.g., end of employment or end of employer-provided coverage) you will want to make sure you stop making HSA contributions 6 months prior.
Why? If you otherwise qualify for an HSA, you can contribute thru the month before you start Medicare (but not after
Not necessarily true.

If you enroll in Medicare after age 65 whether because you start receiving Social Security benefits or you enroll voluntarily. You are retroactively enrolled in Medicare by up to 6 months. but not before age 65. This retroactive Medicare enrollment is automatic and can not be declined.

This makes you retroactively ineligible for an HSA. If you have contributed during this period you have an excess contribution that must be removed. The better option is to knowingly stop HSA contributions at the correct point.
Thank you, this has been very educational. The system is more convoluted than I knew.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

Spirit Rider
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Re: Medicare [Can I contribute to a Health Savings Account?]

Post by Spirit Rider » Tue Nov 14, 2017 11:22 am

Mickey7 wrote:
Mon Nov 13, 2017 11:59 pm
It would be Aug 1st and I would be 66 and 6 months.
Then Medicare would be retroactive to February 1st. So technically you would be eligible to make (2018's contribution limit + $1,000 catch-up contribution >= age 55) * 1 / 12 for January's eligibility.

I think I would not make the January 2018 prorated contribution by payroll deduction. I would wait until after the end of the year when I knew exactly what had happened.

Note: If you are married, your spouse is covered under your HDHP family plan and is not otherwise ineligible she can make the prorated HSA family plan contributions up to July including her own catch-up contributions >= age 55. She will be an HSA eligible individual if she does not have "other" coverage such as Medicare whether current or also retroactive. However, those contributions must be to her own HSA account.

Spirit Rider
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Re: Medicare

Post by Spirit Rider » Tue Nov 14, 2017 11:36 am

BolderBoy wrote:
Tue Nov 14, 2017 9:55 am
Thank you, this has been very educational. The system is more convoluted than I knew.
You are not alone. This Medicare retroactive "gotcha" has unknowingly ensnared a lot of people.

Medicare did not even have any information about this on their website until 2016. Also, the Medicare & You 2017 handbook was the first to include any information about HSAs and Medicare.

It has only been the last several years that the IRS seems to have known about it or cared to enforce it. Yet the retroactive Medicare interaction has always existed.

Believe it or not this was intend as a benefit for later Medicare enrollees with substantial hospitalizations before they enrolled in Medicare. It allowed them to have Medicare retroactively pay massive hospital bills. This existed long before HSAs were every even thought of.

neilpilot
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Re: Medicare

Post by neilpilot » Tue Nov 14, 2017 12:33 pm

Spirit Rider wrote:
Tue Nov 14, 2017 11:36 am
BolderBoy wrote:
Tue Nov 14, 2017 9:55 am
Thank you, this has been very educational. The system is more convoluted than I knew.
You are not alone. This Medicare retroactive "gotcha" has unknowingly ensnared a lot of people.

Medicare did not even have any information about this on their website until 2016. Also, the Medicare & You 2017 handbook was the first to include any information about HSAs and Medicare.

It has only been the last several years that the IRS seems to have known about it or cared to enforce it. Yet the retroactive Medicare interaction has always existed.

Believe it or not this was intend as a benefit for later Medicare enrollees with substantial hospitalizations before they enrolled in Medicare. It allowed them to have Medicare retroactively pay massive hospital bills. This existed long before HSAs were every even thought of.
Very interesting that this was apparently not well communicated. Any information on how consistently it's been enforced?

Spirit Rider
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Re: Medicare

Post by Spirit Rider » Tue Nov 14, 2017 5:46 pm

neilpilot wrote:
Tue Nov 14, 2017 12:33 pm
Very interesting that this was apparently not well communicated. Any information on how consistently it's been enforced?
I have no idea how consistently this is enforced.

I only know of one anecdotal case from years ago. A CP-2000 notice was received on an unrelated HSA issue. As happens in so many of these cases one thing led to another.

The problem is that you generally receive a CP-2000 notice 9-12 months following the tax return due date including extensions. For example, I received a CP-2000 notice for a 529 issue from the 2015 tax year in August of this year.

Unfortunately, that is too late to remove the excess contribution. The last I remember a denial was received for a request to waive the Form 5329 excise taxes. The IRS agreed to waive the penalties, but said they had no authority to waive the excise taxes.

First of all, I think it used to be rare for people not to claim Medicare Part A at 65. After all it was free. The only person who would think to do it would be someone with an HSA. At first there were probably very few people doing this. Now the use of HDHP/HSA plans has exploded. So this is probably why Medicare has started putting information about this in the Medicare & You handbook.

I wonder how many people have had excess contributions in the year they retired and never even knew it. The problem is that technically, there is no SOL on the 6% excise taxes from Form 5329. Conceivably the IRS could go back decades for unpaid excise taxes (not that they have or will). It is far better to get the word out and not have the excess contributions in the first place or remove them in a timely manner.

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