The information provided herein is general in nature. Otherwise, they'll have to file an amended return. It is not a time limit; it is an amount limit. I turned 65 in March 2021 and deferred my enrolling in Medicare until 12/1/21 due to having a HDHP through my employer and continued contributing to my HSA. You can withdraw the money tax-free now or in retirement to pay for qualified medical expenses. Fortunately, in many cases they can reverse overcontributionswhich is how the IRS views contributions made during the six-month lookback periodby contacting their HSA administrator and avoid tax penalties. Thanks, I'm glad we got that sorted out. You can find IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, and IRS Publication 502, Medical and Dental Expenses, online, or you can call the IRS to request a copy of each at 800-829-3676. That period of retroactive coverage will be a period of Medicare entitlement that precludes HSA contributions for those months. shipping, and returns, Cookie HSA and Medicare Penalty: the HSA Medicare 6 Month Rule. What happens when HSA holders over age 65 don't stop making contributions six months before Medicare enrollment? You can make a prorated contribution for the year you enrolled in Medicare that covers the months before you enrolled. When should I stop contributing to my HSA? ANSWER: Not necessarily. Do Not Sell or Share My Personal Information. There is a six-month lookback period (but not before the month of reaching age 65) when enrolling in Medicare after age 65, so a best practice is for workers to stop contributing to their HSA six months before the month they apply for Medicare to avoid penalties. When you file for 2022 tax return, there is a series of checkmarks on form 8889. Penalties accrued differ on a case-by-case basis. Hi LeeAnne! I signed up for Medicare last month (start 7/1/21). Nancy, to avoid paying a penalty, be sure to stop HSA contributions before enrolling in Medicare Part A. Medicare Part A eligibility alone does not disqualify an individual from contributing to an HSA. The six month look back rule only extends your Medicare enrollment backwards six months if you delay from your first eligibility. However, previously costs paid cannot be refunded in order to use HSA money. What is the Penalty for Excess Contributions to an HSA? I was confused, because I first thought you were talking about turning 65 in becoming eligible for the first time, and then you mentioned the six month look back rule. By clicking "Continue", you will leave the Community and be taken to that site instead. When you go to enroll in Part A, just make sure it does not become retroactive. Hi Edward! For residents in select states, enroll in the right Medicare plan for you with help from Fidelity Medicare Services. But if I contribute the maximum to my HSA before I become eligible for Medicare, and for that matter before I can even apply, why would I be penalized? It's the K.I.S.S. Any time a person over age 65 who has been contributing to an HSA delayed enrollment in Medicare or Social Securitywhich triggers automatic enrollment in Medicare Part Athis becomes an issue. @media(min-width:0px){#div-gpt-ad-fiphysician_com-banner-1-0-asloaded{max-width:250px!important;max-height:250px!important}}if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[250,250],'fiphysician_com-banner-1','ezslot_7',112,'0','0'])};__ez_fad_position('div-gpt-ad-fiphysician_com-banner-1-0');This penalty is an excise tax and applies to each year the excess contribution remains. $(document).ready(function () { Hi Chuck! I am planning to change my insurance to HRA plan but will NOT enroll in Medicare until I actually retire. . Schedule an appointmentLog In Required. So, since I'll be making all my HSA contributions before July and won't contribute more than what the IRS allows, Medicare won't penalize it based on the 6-month lookback. If you apply for Medicare prior to your 65th birthday month, you can contribute to your HSA up until the day before your Medicare effective date. It is my understanding that any money withdrawn from the HSA account that was contributed after Medicare enrollment will be subject to back taxes and will accrue a 6% penalty tax until you withdraw the entire excess amount. For 2021 elections, my employer states that I cannot have a high deductible plan and I cannot contribute to the HSA for both myself and spouse and child due to husbands Medicare part A status. However, your husband may still contribute. What can HR staff do to avoid these issues? Let me know if you have any more questions. Welcome back! Hi Jim! healthcare, More for However, if you enroll in Part A and it does become retroactive, you could be penalized for those contributions. It is not intended to be legal or compliance advice. That can pose problems for employees over the age of 65 who contribute to a health savings account (HSA) during the six-month period before enrolling in Medicare, or whose employers made HSA contributions for them during this period. You would want to stop contributions ASAP. That means you are only HSA eligible for 3 months (Jan-March). Otherwise, you could be subject to tax penalties. Tip: Read Viewpoints on Fidelity.com: Your bridge to Medicare. Upon completing her Communications degree from Ohio University, Kayla dedicated her time to understanding the ever-evolving landscape of healthcare. You have clicked a link to a site outside of the TurboTax Community. Adult: means a person who has attained eighteen years of age.See Arizona Laws 1-215; Dealer: means any person engaged in the retail sale of petroleum products supplied under a distributorship, franchise or other agreement, entered into with a distributor.See Arizona Laws 44-1551; Distributor: means any person engaged in the sale, consignment or other . Others say that I cannot contribute within 6 months of starting Medicare (in my case, that would mean 1/31/21 at the latest). KR:There's a lot of advice that tells people if they're past age 65 to stop contributing, or to stop their employer from contributing, six months before retirement. If your employer has less than 20 employees, it wont be considered creditable coverage. We are currently (2020) on a high deductible insurance plan with a HSA. Faye, once you are enrolled in Medicare Part A, you can no longer contribute to an HSA. Must they stop making HSA contributions when they attain age 65? Let me know if you have any more questions! This option wont impact your HSA contributions or your options during the 2021 elections. If you make an ineligible contribution, check that you are actually over the limit. 6 months before applying for Medicare or Social Security benefits. Compare rates side by side with plans & carriers available in your area. 1. SS is now back dating my enrollment date to 4/1. For most, your coverage will not be retroactive. Thank you for the kind words! Save my name, email, and website in this browser for the next time I comment. The month your Medicare begins, your account overseer should change your contribution to your HSA to zero dollars per month. It tells you what you need to do to stay out of trouble with the gun transfer laws when buying firearms across state lines. Enrolling in Part A is mandatory to keep your Social Security benefits.. (If you're not enrolled in Medicare, you will pay a 20% penalty on nonmedical withdrawals, and you'll also pay taxes for such withdrawals.). If you have a Health Savings Account (HSA): To avoid a tax penalty, you and your employer should stop contributing to your HSA 6 months before you retire or apply for benefits from Social Security . Subscribe to our Checkpoint Newsstand email to get the latest tax, accounting, audit, and employee benefits news delivered to your inbox each week. $("span.current-site").html("SHRM China "); If you delay taking Medicare, then Medicare will have a 6 month lookback. if W-2 has been issued, this is much harder to fix. Hi Jacquelyn! Once enrolled in Medicare, an individual can no longer contribute to a Health Savings Account (HSA). What the news means for your money, plus tips to help you spend, save, and invest. Frequently Asked Questions about the HSA and Medicare Penalty. However, if you are not yet enrolled in Medicare coverage, you are still eligible to contribute. Yes. In August, we enroll in Benefits for the next fiscal year beginning Oct 2021. Real experts - to help or even do your taxes for you. So, for example, an employee who turned 68 in July and signed up for Medicare at that time would not be eligible to make any HSA contributions for the preceding six months, effectively precluding any HSA contributions for the calendar year. Regardless if you have employer health insurance. Catch-up: $1,000 additional annually if age 55 or older, Remember to you HSA holders over age 65: stop HSA contributions six months before you enroll in Medicare. The IRS and Medicare recommend that you stop contributing to your HSA 6 months before you enroll in Medicare to avoid these penalties. When I turned 65 last year, I enrolled in Medicare Part A, as required, but did not enroll in Part B. I continued the HSA contributions this year. However, you may continue to withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses, such as deductibles, premiums, copayments, and coinsurances. I made a final, one-time contribution to my HSA account on 10/28/2022 in an amount that brought my 2022 total HSA Contribution to $3,875 ($4,650 / 12 x 10 = $3,875; 10/12ths pro-rated amount of my maximum allowable single annual contribution). There is a statement under What Parts of Medicare are Mandatory: We do not offer every plan available in your area. Hi Ed! Some of our employees are approaching age 65 and will soon become eligible for age-based Medicare Part A. And may I contribute the family amount to my HSA, or only the single amount? If you plan to enroll in Medicare within the calendar year of your retirement, you can pro-rate your HSA deposits to avoid exceeding the limit and receive the maximum value. He went the extra mile. All Rights Reserved. Otherwise, I understood you as saying earlier that the lookback won't come into force if I apply before July 1, and as it happens I'll have already contributed my maximum before that. HSA contributions should stop six months before the effective date of Social Security enrollment. Is that correct? Those who are still employed and have coverage at their employers may have an HSA eligible health care plan and want to continue making contributions (or have their employers make contributions). Since youre now outside your Initial Enrollment Period, youll have to wait until the General Enrollment Period in January to enroll in Part A. I hope this helps! You will have until Tax Day the following year to deposit the HSA contribution for your last year. If so, then comparing your costs for the HDHP plan with Medicare is recommended. My question is: when I switch to Medicare next month, can I still use the HSA to pay for medical expenses, deductibles, premiums, etc.? Build specialized knowledge and expand your influence by earning a SHRM Specialty Credential. For those months, their monthly HSA contribution limit drops to zero. According to the Social Security website, for those enrolling in Medicare after age 65, enrollment can be retroactive up to six months. If you do overcontribute, you can take out the ineligible amount, and withdrawal the excess amount. Gazelle is not responsible for any service charges related to your Product, whether you incur such charges before, during or after your use of the Services. Medicare is not mandatory, however, if youre collecting Social Security income you cannot opt-out of Part A. Integrated software I dont believe your wife can continue to contribute to your HSA if its under your name. My reason for making the HSA contribution soon is likewise merely logistical: get the money into the HSA, exhaust it as the source to pay my medical bills, and then switch to credit cards. Suzanne, HSA funds can be used for premiums or other medical expenses. However, the funds can be used to pay for qualified medical expenses, such as premiums for Medicare Parts B and D, a Medicare Advantage plan, long-term care insurance, and drug copayments. John, the contributions you made after enrolling in Medicare are be considered excess by the IRS. Unfortunately, you cannot continue to contribute to your HSA regardless of who & what the funds are used for once you have Medicare. Group Health Coverage Since HSAs cannot be funded if employees have Medicare, it they are 65 or older they should stop making contributions to their HSA six months before they enroll in Medicare or. media, Press this amount will bring us up to the total allowable amount including the after 55 catch up amount for HSA. You will not be eligible to continue to contribute to your HSA if you enroll in Part A. Some of the confusion in our discussion about it was probably caused by my mixing two different issues: what the IRS requires, and what I plan to do. This leads to an excess contribution and possible Medicare and HSA penalty if you dont fix the excess contributions. Thanks EIP! He is younger than I am by a few years. Robertson: Beginning in 1983, the Department of Health and Human Services started backdating Medicare coverage retroactively for six months to ensure that people coming off of employer health coverage would not inadvertently find themselves uninsured while transitioning to Medicare. HSAs offer triple tax savings1: You can use your HSA to pay for qualified medical expenses each year and let any leftover funds in the HSA grow for use in the future, including in retirement.2 You can use your HSA to pay for qualified medical expenses in retirement, such as vision and dental care, hearing aids, and nursing services. Im a Medicare agent and Certified Senior Advisor (CSA) in the Seattle, WA area but have never come up against an HSA or FSA before now. It sounds as though I may have a problem. Thats when you could see penalties. Hi Lindsey, I have been retired three years and am presently not working. Accidentally contributed too much? Your session has expired. If your Medicare Part A coverage overlaps when you or your employer made contributions, youll have to pay a tax penalty. So, you will want to enroll in Part A in April at the latest. You are considered to be enrolled six months before you claim social security! I just want to be sure that stopping the HSA plan and enrolling in HRA plan will be sufficient time to avoid any penalties with HSA and Medicare. What is the HSA and Medicare Penalty? Please contact Medicare.gov or 1.800.MEDICARE to get information on all of your options. If the person has already received their W-2 and filed their taxes, then a lot more administrative work has to be done. principle: Keep It Simple and Straightforward. I would like to file for Social Security benefits and have been told my current income will not impact by SS benefits and allow collecting both. Free financial education from Fidelity and other leading industry professionals. Simply call855.999.7981. * When you sign up for Social Security retirement benefits, and if you're already six months beyond your full retirement age, Social Security will give you six months of "back pay" in retirement benefits. If your Medicare enrollment is backdated to 4/1 and you were contributing to an HSA during that time, you would be penalized for the excess contributions made after Medicare enrollment. I didnt stop HSA contributions when I signed up for Medicare A while employed. When we found out this was not allowed, we immediately filed form 1763 to disenroll. It does not necessitate a legislative change and could be done with regulation. We both mistakenly enrolled in Part A although her employer contributes $1000 to an HSA (She doesnt contribute to an HSAshe only contributes to an FSA). You would stop contributing to your HSA 6 months prior to your Medicare effective date. Hi Kurt! If an individual does not enroll in Medicare when he/she is first eligible (and is not enrolled in Social Security), his/her later enrollment in Medicare Part A is retroactive for six months. I will be 65 January 2022, am enrolled in a HDHP for myself and spouse. Once you enroll in Medicare, the IRS sets your contribution limit to your HSA to zero. On youremployer group coverage, both you and your employer can contribute funds to your HSA. Because I still work, as of Jan 1, 2021 i will be on my employers PPO plan. Those turning 65 and approaching Medicare enrollment should guesstimate how much qualified Medicare expenses will cost and how best to use the HSA. Here is a nice blog that reminds you Dont Die With Your HSA! I found an article here that provides good information. A reason to allow employees to keep those employer contributions, even though the employer has a right to recoup them, is that the money may have already been spent. } Due to family circumstances, I am looking at either retiring in May 2022 or going to part-time 20 hours/week. Withdraw the excess contributions no later than Tax Day, the year the contributions were made. 1 Determine your Initial Enrollment Period There are only certain times when people can enroll in Medicare. I work and am covered by insurance and have an HSA. Court Calls Into Question Key Portions of ACA Preventive Services Mandate, Appellate Court Blocks HHS From Enforcing Certain Section 1557 Nondiscrimination Provisions Against Group of Faith-Based Providers. Can people choose to forgo the six months of retroactive Medicare coverage to avoid this issue? Hi Terri! You should answer "yes", then you will see the 12 months and the checkboxes. The HSA and Medicare Penalty only affect employees who have HSAs through their employment because they are the ones who contribute out of their respective income. This "6-month lookback" starts when you enroll in Medicare or begin your Social Security retirement benefits. You cannot make any contributions to your HSA once you start taking Medicare. Im 66, receiving my SS, and working for the same company as my spouse (500+). I have a client turning 65 in Oct, she says she has a medical savings account, wants to pay premiums from that. However, this is somewhat of a grey area if your current plan is attached to the HSA and you plan to keep your husband on your group coverage. If contributions were already made for that period, they would need to be timely distributed to avoid the excise tax on excess contributions. Hi Lon! As long as you withdraw from your account to cover qualified Medicare expenses, your money is not taxed. Expert Q&A: Medicare's 6-Month Lookback for HSA Contributions, New OSHA Guidance Clarifies Return-to-Work Expectations, Trump Suspends New H-1B Visas Through 2020, Faking COVID-19 Illness Can Have Serious Consequences, 4 Ways to Boost Employee Satisfaction with HDHPs, IRS Gives Big Boost to HSA, HDHP Limits in 2024, Most Employees Not Maximizing HSA Potential. This situation, however, is totally avoidable if we're doing our job and raising awareness. Previous to receiving SS I had the high deductible plan with an HSA of my own, but had to move to the non high deductible without the HSA. If you happen to have excess contributions, you can withdraw some or all to avoid paying the excise tax. You do not pay taxes on HSA deposits. Thanks Lon. Can an HSA be used for Medicare premiums? Similar to the other questioner, the Medicare representative told me though to be safe, do not contribute to you HSA within 6 most. if(currentUrl.indexOf("/about-shrm/pages/shrm-china.aspx") > -1) {
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when should i stop contributing to hsa before medicare
