HSA Account with Medicare Part A

[Barkley199004]

I thought you had to apply for Medicare Plan A 3 months before your 65th birthday.  So I did so I wouldn't get penalized (or so I though).  I work FULL-TIME and get medical insurance and HSA account of which I contribute $30 a paycheck.  I learned just last night, totally by accident, that I can't have an HSA with Medicare Plan A.  NEWS TO ME!  I was also told that I didn't have to sign up for Medicare Plan A at age 65.  I could wait until i actually RETIRE and no longer have my company insurance.  That I can reapply and show the 1095C form that I have had insurance.   So I find out that my HSA will be penalized for any money in there that I have contributed.  The 6% penalty isn't that much, but are you being taxed on the total amount in the account , or just penalized on the NEW contributions you make each year.  Meaning is I have $1,000 rollover, the next year i contribute $500 - am I being penalized on the $500 or the total $1,500?  So confusing!  

[Opus 17]

You may not contribute to an HSA unless you are covered by a qualifying HDHP and no other coverage.  Medicare counts as "other coverage" and if you are covered by medicare, you are disqualified from contributing to an HSA.

If you enroll in Medicare during your initial window (from 3 months before your 65th birthday to 3 months after your 65th birthday), your coverage will begin on the first day of the month you turn 65.  If your birthday happens to be the first of the month, then your coverage begins the first day of the month before your 65th birthday.  If you delay your medicare, it will become effective on the first day of the month 6 months before you apply.   You must enroll in Medicare unless you present proof that you have employer coverage that is as good or better than medicare.   

If you make excess contributions (more than allowed based on your type of insurance coverage) the excess is subject to a 6% penalty this year and every year thereafter until it is spent, or can be treated as a qualified contribution.  Your entire balance is not penalized, but the excess remains in your account and that is continually penalized until you deal with it.  (Your contribution is also not tax deductible if it is considered excess.). 

"Excess" is based on your coverage, not the date the contribution is made.  For example, if you are covered by a single HDHP and you are over age 50, the maximum contribution is $4650 for 2022, which works out to $387 per month.  Suppose Medicare starts for you on April 1, 2022.  You were HSA-eligible for 3 months, so your contribution limit was $1162.  It doesn't matter when you make the contribution, you could even make your contributions after you enroll in medicare.  What matters is whether you contributed more than $1162.  (Your exact limit will depend on how many months you were covered by an HDHP and not covered by medicare.)

I don't know if it is possible to back out of medicare if you enroll, someone else will have to advise you on that.

[BillM223]

1. As you now know, you did not have to sign up for Medicare until you began to take Social Security. Or, as you note, you could sign up for Medicare when you lost your large employer group coverage plan.

2. "So I find out that my HSA will be penalized for any money in there that I have contributed." No, as Opus pointed out, you will be penalized for (1) any money you contributed in excess of your annual HSA annual limit which will vary based on what month (and year) you went on Medicare, and (2) any money in excess that you failed to withdrew from your HSA by the due date of the return - that it, the IRS gives you a chance to correct the excess contribution without penalty.

3. As for withdrawing from Medicare and reapplying later, this is not so trivial. Please see how AARP describes the process and the concerns. 

4. When you go through the HSA interview in TurboTax, be sure to enter those months you were on Medicare. This will affect your annual HSA contribution limit, and if you were on Medicare for all 12 months, then all your contributions would be disallowed and treated as excess.

So when did you go on Medicare (year and month)?  If you went on Medicare in 2022, this is relatively easy to address, but if you went on Medicare in 2021 or before, then the fix is more difficult.

NOTE, I said that the IRS allows you to withdraw the "excess" without penalty, but only by the due date of the return. This year, the due date is April 18th, unless you live in certain disaster counties in California, Alabama, Georgia, New York, and Mississippi. (if you live in one of these states, please tell us). Or, alternatively, if you file an extension, then you have until October 15th to address this excess issue.