A Health Savings Account (HSA) is a great way to pay for your health expenses. But did you know there are certain rules that apply to HSAs when going on Medicare? Watch to learn more about retirement and your HSA.
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If you were able to prepare for retirement, you may have chosen to contribute to a 401(k), IRA, or HSA during your working years to help you pay for future medical expenses. While an HSA may be one of the more advantageous of the three, you may not know that there are certain rules you must follow once you get ready to go on Medicare.
A Health Savings Account (HSA) is a great tool to help you pay for health expenses with all the added benefits of being extremely tax-advantaged. It’s a personal savings account that you can contribute to and withdraw from tax-free to use for medical expenses like copays, coinsurance, and deductibles.
If you have an HSA, it is important that you and your employer STOP contributing to it at least 6 months before you retire or apply for Social Security benefits (or Railroad Retirement Board benefits). If you fail to do so, you could face a hefty tax penalty if your Medicare coverage was in effect while contributions were made. Once you are covered by Medicare, you can no longer contribute to your HSA – this is because in order to make contributions, you cannot have any health insurance other than a High Deductible Health Plan (HDHP).
Whether you should put off retirement to continue contributing is your choice. Just be sure to plan your retirement date ahead of time so you can stop making contributions 6 months prior to going on Medicare. Remember, you can still use the funds to pay for qualified medical expenses, so it will make a great addition to any coverage you pick up.
I’m planning to draw Social Security at 62, but I will still have a high deductible health insurance plan until I am 65. According to the video, and the above text, it sounds like I can’t contribute to my HSA while I’m drawing Social Security even if I’m not covered by Medicare. Is this correct?
The above text mentions that you should stop contributing at least 6 months before you retire or apply for Social Security benefits, because once you apply for Social Security benefits, your Part A of Medicare will automatically begin 6 months before your 65th birthday.
Since you are drawing benefits earlier (at age 62) and you will have a High Deductible Health Plan (not Medicare), you will not be penalized for contributing at this time. To avoid penalties in the future you should stop contributing to your HSA 6 months prior to starting Medicare.
Thank you for your question!
Thank you for your response.
You say once I apply for Social Security benefits (at age 62), Part A will automatically begin 6 months before my 65th birthday, and that I should stop contributing to my HSA 6 months prior to starting Medicare. Does that mean that I should actually stop contributing 12 months before my 65th birthday?
It is the same 6 month window I am referring to in either case.
The takeaway is that you cannot have Medicare AND contribute to your HSA at the same time, otherwise you will face a penalty. Since you are already drawing benefits, the SSA will automatically sign you up for Part A 6 months prior to your 65th birthday, at which time you should stop contributing to your HSA.
I hope that makes sense!
Yes, it does.
So I can no longer contribute to a HSA after retirement, only withdrawals?
Once you have Medicare, you are not eligible to make contributions to your HSA. If your Medicare coverage overlaps when you or your employer made contributions, you will have to pay a tax penalty. You may still withdraw from your HSA to pay for covered expenses once you retire.