HSA and Medicare

[bzorc]

Question: An individual cannot contribute to an HSA once they are enrolled in Medicare. However, if they enroll for Medicare on June 1, could they have contributed to an HSA for the first 5 months of the year in question? If yes, how much could they have contributed? Is the maximum prorated for the 5 month period?

Thanks for any replies.

 

[PAiPal]

HSA contribution limits are calculated on a monthly basis for the months of the year the individual was an eligible individual.  So, if you lose HSA eligibility due to Medicare coverage on June 1, you have 5 months of HSA eligibility and can contribute 5/12 of the HSA limit.

 

[Slider]

The 5/12 rule only applies if you apply for Medicare at the time you reach 65. If you apply after attaining age 65, Medicare Part A coverage is retroactive for the shorter period of (a) six months from application or (2) back to age 65, which can result in retroactive disqualification of HSA eligibility.

So, if the person in the original post was 68 at the time of application for Medicare, there would be six months of retroactive Medicare A coverage so that not only would the person not be HSA eligible for all of the current year contributions, but the person would also be disqualified for the previous December's contribution.

The proposed HSA legislation making its way through Congress would try to change this rule solely for HSA eligibility purposes. From what I hear, passage doesn't look too promising.

[EHE]

Slider - Not sure where your retro Medicare A coverage is coming from.  I hit the magic full retirement age of 66 this year and applied for SSA - which automatically gives you Medicare Part A.  You can't have one without the other.  The Medicare was effective several months AFTER I started to receive my SSA benefit and was not retroactive back to age 65.  So my HSA contribution eligibility ended on 6/1 of this year when the Medicare came effective. HSA contributions Jan - May and none from June forward.     

[Slider]

EHE:

I suggest you google Medicare Part A retroactivity and HSA eligibility. There are a lot of articles out there explaining the retroactivity aspect. I found the following on a CMS fact sheet:

"NOTE: If you qualify for premium-free Part A, your coverage will go back (retroactively) up to 6 months from when you sign up. So, you should stop making contributions to your HSA 6 months before you enroll in Part A and Part B (or apply for Social Security benefits, if you want to collect retirement benefits before you stop working)."

And I found the following Q&A from CMS:

"What happens to my HSA when I sign up for Medicare? You can’t contribute to your HSA once you’re enrolled in Medicare. If you contribute to your HSA after your Medicare enrollment date, you may have to pay a tax penalty. If you’d like to continue contributing to your HSA, you shouldn’t apply for Medicare, Social Security, or Railroad Retirement Board (RRB) benefits. Because your enrollment date for Medicare (i.e., when your coverage starts will generally be 6 months before your application date, you must stop contributing to your HSA 6 months before applying for Medicare. Premium-free Part A coverage begins 6 months back from the date you apply for Medicare (or Social Security/RRB benefits), but no earlier than the first month you were eligible for Medicare. To avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare."

I'm not aware of what extent the IRS and CMS share information about ages and enrollment in Medicare Part A.