15 Feb Have Medicare and an HSA? Don’t make a costly mistake!
If you have Medicare and an HSA (Health Savings Account), there are a few key facts you need to know to avoid making costly mistakes.
How Medicare Enrollment Affects Your HSA
An HSA is a popular tool used to save and pay for future medical costs.
Becoming eligible for Medicare makes you unable to make further contributions to your HSA. However, you can continue to spend any money already in your HSA for approved medical expenses. Read below for more details on how HSAs and Medicare interact with each other.
What is an HSA?
An HSA is a special type of savings account that allows people to save for certain medical expenses. You can access an HSA offered through an employer or you can set it up yourself with a bank.
HSA contributions are often made pre-tax, meaning that you don't pay income taxes on the portion of your paycheck that you put into an HSA, each year.
In 2022, you can put up to $3,650 of pre-tax income into an HSA for yourself, or up to $7,300 for your family. If you are 55 or older, you can contribute an additional $1,000, each year.
HSAs are a helpful savings tool because they have triple tax advantages. You are not taxed on:
- the income that you put into an HSA in a given year.
- interest or other earnings from your HSA.
- money you take out of your HSA to use for qualified medical expenses.
What counts as a qualified medical expense is determined by the IRS, and includes most medical, dental, vision, and prescription costs.
Basically, the government tries to encourage Americans to save for health-related expenses by not taxing the money you put into or take out of an HSA. Also, like a retirement account, an HSA is always yours and stays with you even if you leave your employer.
Am I eligible to contribute to an HSA?
Not everyone is eligible to contribute to an HSA. There are four main requirements to be eligible. First, you must be covered under a high deductible health plan. Second, you generally cannot have any other form of health insurance (with some exceptions). Third, you cannot be enrolled in Medicare. Finally, you cannot be claimed as a dependent on someone else’s tax return.
For 2022, the IRS considers a high deductible health plan as a plan with an annual deductible of at least $1,400 for an individual or $2,800 for a family. Additionally, the total yearly out-of-pocket expenses (including deductibles, co-payments, and co-insurance) cannot be more than $7,050 for an individual or $14,100 for a family.
Can I contribute to an HSA if I have Medicare?
You cannot contribute to an HSA if you are enrolled in Medicare. You become ineligible for HSA contributions starting with the first month you are covered by Medicare.
Importantly, if your Medicare coverage is applied retroactively to past months, you will be considered ineligible to contribute to an HSA for those months as well.
You should make sure to stop HSA contributions at least six months before enrolling in Medicare because you may face tax penalties for making ineligible contributions.
If your spouse is enrolled in Medicare, but you are not, you may continue to contribute to your HSA and use money from your HSA to cover qualified medical expenses for both you and your spouse. However, your spouse cannot contribute to an HSA or split the family maximum contribution with you.
What happens to my HSA when I enroll in Medicare?
While you can no longer contribute to an HSA once you enroll in Medicare, the money in your account does not disappear. You can continue to use money from your HSA to cover qualified medical expenses as you did before enrolling in Medicare.
Plus, you can use your HSA funds to pay for or reimburse yourself for premiums for Medicare parts A, B, C, and D. Premiums for Medigap or other Medicare supplement policies are not considered qualified medical expenses for using HSA funds.
Even if your Medicare premiums are deducted directly from Social Security benefits, you can still pay yourself back for the cost, by withdrawing the same amount of money from your HSA tax-free.
Is there another savings account available if I’m enrolled in Medicare?
If you are enrolled in Medicare and want a health savings account, you can consider a Medicare Medical Savings Account (MSA) Plan. These plans combine a high-deductible Medicare Advantage Plan with an MSA. Medicare MSA Plans cover all of the same services that Medicare Advantage Plans must cover. Plus, you can use the money in your savings account to pay for any qualified medical expense, including those not covered by Medicare.
However, it is important to review all of your Medicare options to decide which Medicare coverage option is best for you. For more information about how to pick a Medicare plan, visit: TriageCancer.org/HealthInsurance.
About Triage Cancer
Triage Cancer is a national, nonprofit providing free education to people diagnosed with cancer, caregivers, and health care professionals on cancer-related legal and practical issues. Through events, materials, and resources, Triage Cancer is dedicated to helping people move beyond diagnosis.
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