Medicare HSA Penalty

[EverHopeful]

How much is the penalty for contributing to HSA within the 6 month window of going on Medicare?
If we stop contributions to the HSA I don’t think the employer will stop their weekly contribution?

Context: DH turns 65 early August 2025, is working full time. DH recent PET scan shows active disease in previously treated tumor in his cerebellum. He has UHC HDHP HSA employer plan with a July – June plan year. DH contributes $150 weekly and the employer contributes $1500, which is contributed $750 upfront in July and then weekly $14.42. Depletion of our HSA balance has occurred over the past 3 years, the current balance is $1800, and our expenses now exceed this balance.

I believe the Dr/Hospital can help us get on Medicare depending on what the treatment will be and how he fares through this recurrence (appt is 12/9). His employer has a third party navigator that told us NOT to enroll in Medicare if we were participating in an HSA and to cease contributions within 6 months of Medicare enrollment, but I think the employer will continue to contribute even if he stops?

If the cancer progresses, I’m not sure if enrolling in SSDI makes sense for a few months before enrolling DH in Medicare? We were planning on waiting until he is 70 as he is the higher earner. He does have 12 or so days sick time in his bank, employer provided STD, and FMLA as an option and worst case COBRA which I know is expensive.

I know DH will want to work as long as he can, it’s good for his brain and the distraction is beneficial. He’s never stopped working since lung cancer diagnosis in 2021, only missed 2 days for chemo/immunotherapy side effects that put him in the hospital and he only took off the day of his gamma knife radiation on the cerebellum tumor. We want to make fiscally wise decisions but are out of our depth in knowing what makes sense regarding Medicare while stuck half way through the HSA plan year.
Thanks for your help,
EverHopeful

[MP123]

I believe the Dr/Hospital can help us get on Medicare depending on what the treatment will be and how he fares through this recurrence (appt is 12/9). His employer has a third party navigator that told us NOT to enroll in Medicare if we were participating in an HSA and to cease contributions within 6 months of Medicare enrollment, but I think the employer will continue to contribute even if he stops?

The six month retroactive coverage by Medicare is what can cause issues when one is contributing to an HSA. However, this coverage can't extend back past the taxpayer's 65th birthday, it just affects people who start Medicare later (say 66), and then have a period where they are retroactively HSA-ineligible.

As I understand the timing here I don't think this will be an issue for you, because your spouse would be starting at 65.

[EverHopeful]

Ok, thank you. I asked DH to stop his contribution just for now, depending on the treatment and prognosis he can always increase it in the future.

However, if he ends up on Medicare in the next few months and we get a penalty, then I hope it's only for the first year, at least this way the contributions will be the minimal ~$60/month from his employer as I believe they will continue contributing.

[AnEngineer]

Depending on the timing, you can withdraw excess contributions (and associated earnings if any) by your tax return due date and avoid all penalties.

[Gubshu]

The navigator is confused. The six month look back is only for those starting Medicare after age 65 due to delaying the premium free Part A (typically because the person had employer insurance at and after age 65).

Here is a CMS publication that addresses your issue. Both you & your company must stop contributing to your HSA once you are enrolled in Medicare - you would need to make sure you communicate about your Medicare enrollment with your employer. If you might be retroactively enrolled in Medicare, it would be wise to consider stopping contributions now. If you have a date in the future for enrollment, just work closely with the employer to make sure both the employee and employer contributions to the HSA end before Medicare begins.
https://cmsnationaltrainingprogram.cms. ... 6-2021.pdf

[brockmari]

How much is the penalty for contributing to HSA within the 6 month window of going on Medicare?
If we stop contributions to the HSA I don’t think the employer will stop their weekly contribution?


I believe the Dr/Hospital can help us get on Medicare depending on what the treatment will be and how he fares through this recurrence (appt is 12/9). His employer has a third party navigator that told us NOT to enroll in Medicare if we were participating in an HSA and to cease contributions within 6 months of Medicare enrollment, but I think the employer will continue to contribute even if he stops?

Having recently gone through the process of spouse retiring after age 65 with an HSA, we learned some things related to this complex issue:

First, on defining the month when DH is no longer eligible to make HSA contributions:
1) DH cannot go on Medicare before age 65. But he can go on SSDI before age 65. If he goes on SSDI then he become HSA ineligible the month he begins SSDI coverage.
2) If, before age 65, he continues his company HDHP under COBRA, then he remains eligible to make HSA contributions but only until age 65 at which time he must go on Medicare because COBRA coverage will become secondary at that point. And he will be ineligible to make HSA contributions the month he turns 65.
3) As mentioned by MP123, the 6 months lookback only comes into play if DH continues to work past age 65 and remains covered by the company’s HDHP. In this case he would be ineligible to make HSA contributions as of the 6th month prior to starting Medicare coverage but no earlier than the month he turns 65. So in this case it might be best to just plan on stopping HSA contributions as of the month DH turns 65.

Now on defining excess contributions and penalties:
1) Once DH becomes ineligible to make HSA contributions, company contributions are also ineligible.
2) Importantly, the allowed contribution amount for the calendar year is pro-rated over the calendar year. The total contributions of DH plus employer cannot exceed 1/12 of the allowed annual contributions times months of eligibility for that year. So for example since DH turns 65 in August, and allowed 2025 contribution is $5300, if he goes on Medicare than DH plus company total contributions for 2025 would be $3091. He would have until 2025 taxes are filed (April 2026) to make that contribution.
3) For this year, if DH remains on company HDHP through December 1 (which counts as the entire year) and does not go on SSDI, then you would have until this year’s taxes are filed in April 2025 to make the total combined (DH plus company) contribution of $5150.
4) This presumes that you are not also covered by your husband’s HDHP. If you are covered by his plan, then you would be entitled to contribute an equal amount to an HSA in your name.
3) In case of any excess contributions, you have until your tax return date to withdraw all excess contributions and associated earnings without penalty. The HSA custodian should have forms to do this. If not removed, then the penalty will be 6% of the excess and associated earnings and the penalty continues every tax year until the excess amount is withdrawn.

[EverHopeful]

The navigator is confused. The six month look back is only for those starting Medicare after age 65 due to delaying the premium free Part A (typically because the person had employer insurance at and after age 65).

Here is a CMS publication that addresses your issue. Both you & your company must stop contributing to your HSA once you are enrolled in Medicare - you would need to make sure you communicate about your Medicare enrollment with your employer. If you might be retroactively enrolled in Medicare, it would be wise to consider stopping contributions now. If you have a date in the future for enrollment, just work closely with the employer to make sure both the employee and employer contributions to the HSA end before Medicare begins.
https://cmsnationaltrainingprogram.cms. ... 6-2021.pdf

Thank you so much for the guidance and publication!

[EverHopeful]

How much is the penalty for contributing to HSA within the 6 month window of going on Medicare?
If we stop contributions to the HSA I don’t think the employer will stop their weekly contribution?


I believe the Dr/Hospital can help us get on Medicare depending on what the treatment will be and how he fares through this recurrence (appt is 12/9). His employer has a third party navigator that told us NOT to enroll in Medicare if we were participating in an HSA and to cease contributions within 6 months of Medicare enrollment, but I think the employer will continue to contribute even if he stops?

Having recently gone through the process of spouse retiring after age 65 with an HSA, we learned some things related to this complex issue:

First, on defining the month when DH is no longer eligible to make HSA contributions:
1) DH cannot go on Medicare before age 65. But he can go on SSDI before age 65. If he goes on SSDI then he become HSA ineligible the month he begins SSDI coverage.
2) If, before age 65, he continues his company HDHP under COBRA, then he remains eligible to make HSA contributions but only until age 65 at which time he must go on Medicare because COBRA coverage will become secondary at that point. And he will be ineligible to make HSA contributions the month he turns 65.
3) As mentioned by MP123, the 6 months lookback only comes into play if DH continues to work past age 65 and remains covered by the company’s HDHP. In this case he would be ineligible to make HSA contributions as of the 6th month prior to starting Medicare coverage but no earlier than the month he turns 65. So in this case it might be best to just plan on stopping HSA contributions as of the month DH turns 65.

Now on defining excess contributions and penalties:
1) Once DH becomes ineligible to make HSA contributions, company contributions are also ineligible.
2) Importantly, the allowed contribution amount for the calendar year is pro-rated over the calendar year. The total contributions of DH plus employer cannot exceed 1/12 of the allowed annual contributions times months of eligibility for that year. So for example since DH turns 65 in August, and allowed 2025 contribution is $5300, if he goes on Medicare than DH plus company total contributions for 2025 would be $3091. He would have until 2025 taxes are filed (April 2026) to make that contribution.
3) For this year, if DH remains on company HDHP through December 1 (which counts as the entire year) and does not go on SSDI, then you would have until this year’s taxes are filed in April 2025 to make the total combined (DH plus company) contribution of $5150.
4) This presumes that you are not also covered by your husband’s HDHP. If you are covered by his plan, then you would be entitled to contribute an equal amount to an HSA in your name.
3) In case of any excess contributions, you have until your tax return date to withdraw all excess contributions and associated earnings without penalty. The HSA custodian should have forms to do this. If not removed, then the penalty will be 6% of the excess and associated earnings and the penalty continues every tax year until the excess amount is withdrawn.

Wow, I am printing this and will digest, the Dr appt will help us decide to pivot if necessary to SSDI, we don't know details yet just that he's suspicious for recurrent disease. I am very grateful for this detail and laying out the options. I am covered by his HDHP. I expect if the prognosis and/or treatment is debilitating then the OSU social worker will help us transition to SSDI/Medicare, I would then get on ACA, but I'd like to see if we can use his STD, FMLA, sick time etc as we've met the deductible so all his medical expenses are 100% covered from now until June 30 so staying on his UHC HDHP I think would be best, but I'll have to compare with a spreadsheet, and of course defer to what he wants to do. The Bogleheads have been so crucial to helping me financially I am overwhelmed with gratitude, thank you so much!

[InMyDreams]

You might want to see if you can connect with a SHIP (Medicare) counselor. You can find them by searching "SHIP" and your state name. More info:
https://money.usnews.com/money/retireme ... d-problems
HSA rules around the time of switching to Medicare may be complex, and it's easy to be mislead. Verifying all advice (even from SHIP) is a good plan.

He may have as good or better coverage thru his employer insurance than thru Medicare - and do you have a benefit if he leaves his employer for medical disability? It seems like STD/FMLA would allow him to continue his employment status and his benefits. What about LTD?

Best wishes to you and him in this difficult time.

[EverHopeful]

You might want to see if you can connect with a SHIP (Medicare) counselor. You can find them by searching "SHIP" and your state name. More info:
https://money.usnews.com/money/retireme ... d-problems
HSA rules around the time of switching to Medicare may be complex, and it's easy to be mislead. Verifying all advice (even from SHIP) is a good plan.

He may have as good or better coverage thru his employer insurance than thru Medicare - and do you have a benefit if he leaves his employer for medical disability? It seems like STD/FMLA would allow him to continue his employment status and his benefits. What about LTD?

Best wishes to you and him in this difficult time.

Thank you, I was just looking up how early Medicare works for a brain tumor, I will call a local SHIP. There's a local Bogleheads chapter and they just had a presentation on Medicare but it was the one meeting I missed! I have the slides, so I will reach out and contact a local SHIP to discuss.

DH got his job back after Covid in July 2021 and he was diagnosed with lung cancer in early Sept 2021 and the LTD had a 90 day window and a look back of 1 year, we didn't elect or qualify.

Thanks, DH is very optimistic, he's never missed work except 3 days of PTO for cancer treatment and side effects. I'm more somber as treatments for recurrent brain are limited, and both his lung and brain cancers were/are unresectable. We're in an excellent university health care system with research and it's amazing what they can do now. Life is an adventure.