There are important IRS rules that impact your eligibility to continue contributing to a Health Savings Account when you turn age 65 and are still enrolled in a High Deductible Health Plan.
- Starting the month you turn age 65, you are eligible for Medicare. While you can decline coverage, there are potential impacts and penalties to your premium when you enroll later.
- You can have an open Health Savings Account and be enrolled in Medicare at the same time – however, you are no longer eligible to contribute.
- You can continue to use the funds in your Health Savings Account after you are on Medicare, even for Medicare premiums or long-term care insurance.
- While you can make Medicare Part A retroactive up to six months, this conflicts with your eligibility to contribute and you will pay taxes and penalties when you file your taxes.
Here is a helpful link that outlines Medicare enrollment: https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/when-how-to-sign-up-for-part-a-and-part-b.html
Contribution Limit Warning
During the year you turn Age 65 and enroll in ANY part of Medicare, you will have a reduced HSA contribution limit depending on how many months you are Age 64. Medicare enrollment begins the first day of the month you turn 65.
- Example: Betty is enrolled in a family High Deductible Health Plan which provides a contribution limit of $6,750 in 2017. Since she is over 55, she gets a $1,000 catch-up contribution bringing the actual limit to $7,750. Her 65th birthday is August 15, meaning she is eligible for Medicare enrollment on August 1st. She is only eligible to contribute from January until July (seven months) and has a reduced limit of $4,520.83 ($7,750 divided by twelve months times seven months).
- Example: Sam is enrolled in a self-only High Deductible Health Plan which provides a contribution limit of $3,400 in 2017. He also qualifies for the $1,000 catch-up contribution since he is over 55, bringing his actual limit to $4,400. His 65th birthday is January 20th, meaning he is eligible for Medicare enrollment on January 1st. He is not eligible to contribute any money throughout the year.
How Tango Health Helps
During enrollment, if you are already over age 65 you will be questioned whether you are enrolled in Medicare and thus not eligible to contribute to a Health Savings Account. This prevents any tax consequences due to ineligible enrollment from the start.
Throughout the life of the account, we’ll monitor your contribution limit and automatically reduce it for the year you turn 65. Even if you forget to stop payroll deductions, we’ll still cap it to ensure funds do not enter the account and create a tax consequence.
If you decide to waive Medicare, you can adjust your contribution limit through Tango Health. Your selection of waiving coverage will remain in place until you tell the system otherwise. Please contact support if you need help! firstname.lastname@example.org