HSA Benefits After Retirement

Contributing to a health savings account or HSA before you retire can provide various benefits after you turn 65. These plans typically cover just qualified medical expenses, which can be reimbursed tax and penalty free. To determine how to maximize your distributions from your HSA, discuss your current retirement plans with your tax professional or accountant, such as James Wells EA MBA Tax Office in Santa Cruz, CA.

Here are a few of the main topics associated with HSAs, especially for individuals who have reached or are near the age of 65 and considering retirement.

Eligibility for a Health Savings Account

Keep in mind that once you are eligible for Medicare, you are not eligible to contribute to an HSA. However, any funds still in your account can reimburse qualified medical expenses and other expenses until the funds have been used up.

You are also ineligible to contribute after you turn 65. Therefore, it is important to work with your accountant or tax professional to maximize your last HSA contribution. This can be made up to April 15^th of the year after the tax year an individual loses their HSA eligibility. You can make this contribution, even if you are no longer eligible to contribute, because it is for an eligible period.

For those that choose to not enroll in Medicare, they maintain their eligiblity to contribute and maintain an HSA. However, you need to keep in mind that Social Security typically enrolls you automatically in Medicare Part A. Therefore, by electing to collect your Social Security benefits, you are typically ineligible for Medicare.

To determine the best option for your circumstances, it is important to determine if it is feasible to avoid enrolling in Medicare by deferring the collection of your Social Security benefits. By doing so, you can continue your HSA contributions, including any catch-up if you are eligible.

Spouse Under the Age of 65

For those who have 65 and elected to take their Social Security benefits and enroll in Medicare, a younger spouse who is still eligible to contribute to an HSA account. They must open their own HSA account because they are eligible and can make their full contributions, including any catch-up. However, they cannot make contributions into their spouse’s account.

Most of these HSA accounts can be started through an employer. However, HSA accounts can be started by individuals who meet the following criteria:

• Covered by a high deductible health plan
• Not covered by another health plan
• Not eligible to be claimed as a dependent
• Not entitled to Medicare benefits

Using various resources available, you can set up an HSA but if your spouse has an HSA, consider maximizing your contributions to enjoy the benefits of this tax-free savings account.

Distributions

The distributions after age 65 from a HSA account will be penalty-free, regardless of the reason for the distribution. However, they can also be tax-free if used to pay for a qualified medical expense. Any other withdrawals will be subject to standard income tax rates at the time of the withdrawal.

Thus, for many individuals, the HAS will provide the funds to pay for medical expenses not covered by Medicaid or their medical insurance.

Retirement Savings

An HSA can be used as an income source after you turn 65, but you will have to make income tax payments on the distributions. However, the benefit is that you can enjoy the additional supplemental income as needed for non-qualified expenses penalty-free. Therefore, you want to maximize your contributions to this fund and your IRA, to maximize your potential return. Also, contribute any catch up contributions you may be eligible for.

Health Insurance Premiums

One of the other benefits of a health savings account is that your premiums for Medicare parts A, B, D and any HMO premiums are eligible for a tax-free and penalty-free distribution. If your Medicare premium is deducted right from your Social Security check, then you can reimburse yourself from the HSA for those premiums. If you are still working, then you can use your HSA to pay your share of the premiums or reimburse yourself for those premiums if they are currently deducted from your check.

Thus, if you qualify for an HSA, it is important to make sure that you are making your full contributions, including any catch-up to benefit from this savings option after you turn 65.

Click on the link below to connect with one of the tax professionals at James Wells EA MBA Tax Office in Santa Cruz, CA, to discuss the tax implications of your HSA and your contribution eligibility.