HSA and Medicare

[564Otto]

Medicare and HSA Contribution - I turned 65 in July 2020, my wife turned 65 in Sept. 2020.  I have  an HSA account that I  contributed to the maximum for a family for 2020, with my last contribution in Nov. 2020.   I will lose my job working for a large bank  and their HDHP coverage in December 2020, so I will apply for Medicare A and B now, and ask for a January or February 2021 effective date.  When I receive Medicare effective in 2021, will the IRS look back at my 2020 HSA contributions and penalize me because I did not stop making contributions 6 months earlier?   I have always used Turbo Tax Premier Download and will continue doing that for 2020 and 2021 tax returns.

[Critter-3]

This article states it in plain English :   https://www.medicareinteractive.org/get-answers/coordinating-medicare-with-other-types-of-insurance/...

If you choose to delay Medicare enrollment because you are still working and want to continue contributing to your HSA, you must also wait to collect Social Security retirement benefits. This is because most individuals who are collecting Social Security benefits when they become eligible for Medicare are automatically enrolled into Medicare Part A. You cannot decline Part A while collecting Social Security benefits. The takeaway here is that you should delay Social Security benefits and decline Part A if you wish to continue contributing funds to your HSA.

Finally, if you decide to delay enrolling in Medicare, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty.

[Opus 17]

Assuming that you have qualifying HDHP insurance on the first day of December, 2020, and assuming that your Medicare effective date is in 2021, then you and your spouse are entitled to make full year HSA contributions for 2020.  If you are not covered by a qualifying HDHP plan on December 1, then you only have 11/12ths eligibility for 2020.

I am not an expert on Medicare effective dates, but if the effective date is retroactive to 2020, you will have to remove the excess contributions from your HSA before April 15, or pay a significant penalty.

[messkat]

I am in a similar situation.  I signed up for Medicare in December and it was made retroactive to Sept when I turned 65.  I was still contributing to my HSA. 

Any clue how I go about removing the funds? 

What tax form do I need to use to report the extra funds if I'm unable to do so by April?

[564Otto]

I contacted the H.R. Dept. of my company, and they sent me a form to complete that requested a refund of my HSA contributions that I had made during the Medicare retroactive period.  In turn, they sent me a check refunding those contributions.  It is important that you do that before you file your 2020 taxes, which I have not done yet.  Also, note that I believe you need to estimate and report your income generated by those contributions on your tax return.   I believe Turbo Tax guides you through that.  Since I have not filed my taxes yet, I am not 100% sure on that. 

[paulgk123]

The key word there is "enroll."  I believe the SSA counts the 6-month retroactive time from when you enroll, not when your benefits being.  This happened to me,  but can someone verify it?

[Opus 17]

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@paulgk123 wrote:

The key word there is "enroll."  I believe the SSA counts the 6-month retroactive time from when you enroll, not when your benefits being.  This happened to me,  but can someone verify it?

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As far as eligibility to make HSA contributions, it ends when your Medicare coverage begins.  It appears that if you don't apply during your initial eligibility period (your 65th birthday plus or minus 3 months) then coverage is retroactive 6 months from when you enroll.  There are some exceptions if you are enrolled in a group health insurance plan with a large employer when you turn 65.   You will need to discuss your specific details with a qualified insurance specialist to be sure in your situation.

https://www.medicare.gov/sign-up-change-plans/how-do-i-get-parts-a-b/when-will-my-coverage-start