If I enroll in Medicare Part A, does that affect my spouse's HSA?

[infomation]

I am on my spouse's employers insurance and trying to decide if I should enroll in Medicare Part A.  Yet, I do not want it to affect my spouse's HSA or contributions thereof.

[VictoriaD75]

Yes. Your contribution will be affected. Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. 

For example, you turned age 65 in July 2019 and enrolled in Medicare. You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Your contribution limit is $2,250 ($4,500 × 6 ÷ 12).

Pub 969 Tax-Favored Health Plans

[Hal_Al]

 I don't believe the other reply is correct (if it is I'm in trouble!).  The example is correct for the year that the 2nd spouse becomes eligible for Medicare.

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"Medicare coverage is not compatible with HSA eligibility, but it is individual coverage. So if a spouse is covered by Medicare, that fact has no bearing whatsoever on the other spouse's ability to contribute to an HSA account, since HSA accounts are individual trust accounts."

Reference: https://askmrhsa.com/education/top-ten-hsa-questions/#:~:text=Medicare%20coverage%20is%20not%20compa...

[infomation]

Victoria,

Thank you for your response. Yet, now I am even more confused because reading some things online I see that because I am not the one contributing to the HSA there is no affect on my spouse's HSA.  Is that correct?  I am on her employer's insurance plan and the HSA deductions come out of her paycheck so I am not contributing.  Your thoughts? Thank you.

[infomation]

Thanks Hal_Al, I will look at that.

[Opus 17]

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@infomation wrote:

Victoria,

Thank you for your response. Yet, now I am even more confused because reading some things online I see that because I am not the one contributing to the HSA there is no affect on my spouse's HSA.  Is that correct?  I am on her employer's insurance plan and the HSA deductions come out of her paycheck so I am not contributing.  Your thoughts? Thank you.

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Your Medicare does not affect your spouse's eligibility to contribute to an HSA.  However, if she changes from a family HDHP to a single HDHP when you enroll in Medicare, that will affect her eligibility.  

[infomation]

Opus 17,

Thank you for your response.  Now, I really am confused.  So because I am on her plan now I am guessing it is a family HDHP. Is that correct?  Yet, if I get Medicare are you basically saying I would have to stay on her plan as well to avoid her not being eligible for HSA deductions?

[BillM223 · Accepted solution]

Family HDHP coverage is when the policy covers the taxpayer and at least one other person (even if that person is not eligible to contribute to an HSA).

As for the question of your Medicare coverage, this does not affect your spouse's annual HSA contribution limit at all, unless your spouse chooses to go from Family HDHP coverage to Single HDHP coverage.

She would still be able to contribute to her HSA, it's just that with Single coverage, her annual contribution limit would be reduced.

You going on Medicare otherwise does not affect her HSA at all, only yours (if you had one).

[Opus 17]

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@infomation wrote:

Opus 17,

Thank you for your response.  Now, I really am confused.  So because I am on her plan now I am guessing it is a family HDHP. Is that correct?  Yet, if I get Medicare are you basically saying I would have to stay on her plan as well to avoid her not being eligible for HSA deductions?

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The contribution limit for someone on a single plan is $3550 for 2020, plus $1000 catch-up if the person is over 55.  The limit for someone with a family HDHP policy is $7100 plus a $1000 catch-up provision if over age 55.

You may not know: if your spouse has an HSA-eligible family HDHP, you are assumed to also be covered by a family HDHP which makes you eligible to make HSA contributions in your own name.  There are no joint HSAs, each HSA is owned by an individual. But you may make individual contributions to your own HSA in your own name if you are eligible under your own or your spouse's HDHP.  If you don't have your own HSA, you can open one at many banks for a small service fee (if it's more than $3 a month, find another bank). 

So:

If we assume that your wife is on a family HDHP now, then your combined annual contribution limit is $9100: $7100 for a family HDHP, plus a personal $1000 catch-up contribution for each spouse aged 55 or older.  The money can be split into two HSAs in any way you want EXCEPT that your catch-up contribution can only go in your own account.  So for example, you could contribute $1000 and your spouse could contribute $8100, but your spouse can't contribute $9100.

Your spouse can contribute to an HSA as long as your spouse does not have other medical coverage.  But, when you enroll in Medicare, if your spouse switches to single insurance coverage to save on premiums, then her HSA contribution limit is reduced to the single level for the remaining months of the year.  HSA eligibility is determined according to the insurance you have on the 1st day of each month. 

Suppose you are deemed enrolled in Medicare as of July 1, 2020 and your spouse changes to single coverage.  (Enrollments are often backdated to the month of your 65th birthday, even if you enroll up to 3 months late I think.)  Your overall contribution limit for the year would be figured like this:

Family HDHP for 6 months =$7100/12 x 6 months = $3550.

Single HDHP for 6 months =$3550/12 x 6 months = $1775.

Spouse catch-up = $1000 (not limited because she does not have other medical coverage)

Your catch-up = $1000/12 x 6 months = $500 (limited because you went on Medicare).

Total is $6825, but the $500 for your catch-up must go in an HSA in your name, the max your spouse can put in her account is $6325. 

If your spouse keeps the family HDHP for the whole year, she keeps the $8100 HSA contribution limit for her account, and you can contribute $1000/12 = $83.33 for each month you aren't enrolled in Medicare into an account in your own name.  But you would have to decide whether the tax savings would compensate for the higher premiums.

If you don't enroll in Medicare any time in 2020, your spouse can contribute the full $8100 and you can contribute your full $1000 catchup to an account in your name.  But, there can be significant penalties if you don't enroll in Medicare when you are first eligible, and those penalties might cost more in the long run than the lost tax deduction.  

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Now I don't want to confuse you further, but I want to go back in time to 2019 and make sure you know of an opportunity you have.  Have you been saving in your own separate HSA?  Because if not, you can make a deposit into an account in your own name retroactive to 2019 if you do it by July 15.    Remember that your spouse's limit, if over age 55, is $8100.  You have a $1000 per year catch-up provision that is separate from her and must go into an account in your name.   You can deposit $1000 as a retroactive contribution for 2019 and take a tax deduction on your 2019 return as late as July 15, 2020.  If you already filed a return, you can file an amended return to list the additional contribution and claim an additional refund.  Just be sure that the contribution is made for 2019, not 2020.  You may need to work with the bank on this.  

If your spouse did not contribute the maximum in 2019, she can also make a retroactive contribution as long as it is done before July 15. 

[infomation]

Thanks Opus 17, that is an immense help.

[claufer822]

So to be perfectly clear, I have been covering my wife with my employer's family plan. It's just me and her, no other dependents on the plan. I have been contributing the maximum family amount plus my $1000 catch up. The fact that she is on medicare has no effect at all on my ability to contribute up to family limit? Others have told me that because she is on medicare i can only contribute up to the single limit even if I have family plan coverage. So which is what I am actually allowed to do, family limit or single limit. thank you for your time.

[Opus 17 · Accepted solution]

@claufer822 

As long as you are enrolled in a family HDHP (meaning your spouse has double coverage from Medicare and your HDHP) then you are allowed to contribute up to the family limit.  Any other coverage your spouse has will disqualify her (she can't make her own $1000 catch-up, for example) but her other coverage does not disqualify you.  

If you decided to downgrade your coverage to single (to reduce the premium since she is covered by Medicare) then you would be subject to the single limit going forward.