Gathering the Benefits of an HSA after 65

After retiring, medical expenses can mount. Without the benefits of health insurance, a health savings account or HSA can reimburse you for a variety of qualified medical expenses with tax free dollars. However, the HSA offers benefits that can continue after you turn 65. To determine how to maximize your distributions from your HSA, discuss your current retirement plans with your tax professional or accountant. Here are a few of the common aspects of HSAs, especially for individuals nearing the age of 65.

Eligibility for a Health Savings Account

Keep in mind that once you are eligible for Medicare, you are unable to contribute to an HSA going forward. However, any funds still in your account can be used for 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 contribution to your HSA. This can be made up to April 15^th of the year after the tax year you lose your eligibility for an HSA. You can make this contribution, even if you are no longer eligible to contribute, because you are contributing for a period when you were considered eligible.

For those that choose to not enroll in Medicare, you remain eligible to contribute and maintain your 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 route for you and your family, 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.

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 HSA will provide the funds for various medical expenses not covered by other options.

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 can be reimbursed tax-free, along with being a 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.

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.

Additionally, these accounts cannot be opened to cover expenses that have already occurred. They must be used to cover expenses moving forward. 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.

Retirement Savings

An HSA can also provide additional income 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.

With an HSA, you can enjoy benefits both now and in the future. Therefore, make your full contributions, including any catch-up to benefit from this savings option especially after 65.

Click on the link below to connect with one of the tax professionals to discuss your options regarding an HSA and the tax implications for your retirement.