Health Saving Accounts are accounts for individuals with high-deductible health plans. Funds contributed to an HSA are not taxed when put into the HSA or when taken out, as long as they are used to pay for qualified medical expenses. If you have an HSA and will soon be eligible for Medicare, it is important to understand how enrolling in Medicare will affect your HSA.
Once you enroll in Original Medicare Parts A and B, you can no longer contribute pre-tax dollars to your HSA. This is because in order to contribute pre-tax dollars to an HSA, you must have a High Deductible Health Plan (HDHP). Medicare is not considered a HDHP. If you choose to delay Medicare enrollment because you are still working and have employer coverage, you must also wait to collect Social Security Benefits. This is because most people who are collecting Social Security benefits will automatically be enrolled in Medicare Part A when they become eligible.
If you work for an employer with more than 20 employees and have creditable employer coverage, you may choose to delay your Social Security Benefits and Medicare Part A. If you choose to delay enrolling in Medicare, you will want to make sure you stop contributing to your HSA at least six months prior to enrolling in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage. If you do not stop HSA contributions at least six months prior to Medicare enrollment, you may incur a tax penalty.
If you have specific questions about HSAs reach out to OHB toll free at 330-633-3837 or your tax professional.