HSA family contribution with Medicare enrollment

[Serge]

This year my wife is eligible for Medicare part A as her 65th Birthday is Dec 07. She is still employed and we are both covered under her company high deductible medical plan. I am not eligible for Medicare. My wife will sign up for Medicare part A.  We are contributing to a family HSA. I know once we get in Medicare, she is no longer allowed to pay in the HSA.

Question 1: can she enroll in Medicare in January 2021 (60 days max to do it from Birthday) or must she do it prior her Birthday in December 2020?

Question 2: Without my wife enrolling in Medicare, we can contribute $8100 max for 2020. If she enrolls only in January 2021, can we still contribute $8100 for 2020 since she would enroll in 2021?

Question 3: Is she enrolls in December 2020 what is the max prorated family amount we can contribute? I came up with $7425 based on some formulas I found I the internet but the HSA Service dept said $5400 max.

We are totally confused about the max amount to contribute and how the pro-rata works.

[Anonymous · Accepted solution]

When you first qualify for Medicare you enroll during the Initial Enrollment Period. The Initial Enrollment Period is a seven-month period that starts three months before you are first eligible for Medicare. For example, Mary Doe Jones turned 65 on April 27, 2020. She is first eligible for Medicare starting in April 2020 because she is turning 65. Her initial enrollment period for Medicare starts January 1, 2020 and lasts until July 31, 2020.

any questions  live chat is available

https://account.mymedicare.gov/?client_id=mbp&redirect_uri=https%3A%2F%2Fwww.mymedicare.gov%2Floginc...

irs info 2016-0003

https://www.irs.gov/pub/irs-wd/16-0003.pdf

Under section 223, the amount of the maximum HSA contribution deduction in the year
an individual reaches age 65 is prorated based on the number of months that the
individual is an eligible individual. In particular, the maximum contribution is based on
the number of months that the person in not enrolled in Medicare.

even if she enrolls in Jan 2021 is coverage effective in Dec 2020  talk to medicare

separate or family HSA?

one a/c for family coverage contributions 

family 7100 prorated for 11 months = 6508

self      3550 prorated for 1 month =    296

catch up (ovetr 55)          =                      1000

total                                                          7804

separate accounts

you   3550 for year                                   3550

you catch up (over 65)                            1000

her 3550 prorated                                      3254

her catch up prorated                                 917

[Opus 17]

First of all, if you are also over age 55, your overall contribution limit is $9100, by using a special provision:

First, remember that an HSA belongs to one person, it is never a "joint" account.  If your spouse has a family HDHP and is HSA-eligible, then you are also considered to have a family HDHP and can contribute to an HSA in your own name.  (You may have to open one at a private bank if your employer does not offer one.)  If you are over age 55, you can contribute the $1000 catch-up provision to an account in your name.  Your overall family limit (ignoring Medicare) is $9100, where the $7100 general limit can be split between the 2 of you, but each $1000 catch-up contribution can only be contributed to an account in your own names. 

Now to add in Medicare: Eligibility for HSA contributions is determined on the first day of the month.  However, Medicare is backdated to the first day of the month in which the person turns 65, even if you enroll late.

If you sign up for Medicare Part A (Hospital Insurance) and/or Medicare Part B (Medical Insurance) during the first 3 months of your Initial Enrollment Period, your coverage starts the first day of the month you turn 65. If your birthday is on the first day of the month, your coverage starts the first day of the prior month.

Therefore, your spouse is not eligible to contribute for December.  Her contribution limit for 2020 is $7425.  This is per the worksheet on page 4 of the form 8889 instructions. https://www.irs.gov/pub/irs-pdf/i8889.pdf

However, if you are covered by her family HDHP and you have not turned 65, your contribution limit for the year is your full amount of $8100 ($7100 family limit plus $1000 individual catch-up, as I explained earlier.)  So if your wife contributes $7425 through her employer, you can contribute an additional $1591 to your own HSA.  (One month of family limit at $591 and your personal catch-up provision of $1000).

To break it down, your wife's limit for 2020 will be ($7100 x 11/12 plus $1000 x 11/12) but your personal limit will be $7100 plus $1000. Therefore, if your wife contributes $6508 plus $916, you can contribute $592 plus $1000.

And if you continue to be covered under her HDHP in 2021, you can continue to make deductible contributions to an HSA in your own name, even though she is ineligible to make contributions under her name. 

[Serge]

Thanks to both of you for an excellent comprehensive response! I had to read this 4 times!

While we re both covered under her HDCP,  I am the one who is the "primary owner for the HSA from my prior job and always contributed for my wife in there.

Thus by her having the HDCP and me having the HSA account, the max in our case with December Medicare would be 1000+3550+3,254 = $7804 max which is outline in here.

I did not realize that we could contribute a proprated amount of a additional $1000 for her if she opens her own account but my HSAa being a "family".  I am not sure that would be allowed.

PS: I also realize the service rep from my HSA company gave me a completely wrong number. 

[Opus 17]

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@Serge wrote:

Thanks to both of you for an excellent comprehensive response! I had to read this 4 times!

While we re both covered under her HDCP,  I am the one who is the "primary owner for the HSA from my prior job and always contributed for my wife in there.

Thus by her having the HDCP and me having the HSA account, the max in our case with December Medicare would be 1000+3550+3,254 = $7804 max which is outline in here.

I did not realize that we could contribute a proprated amount of a additional $1000 for her if she opens her own account but my HSAa being a "family".  I am not sure that would be allowed.

PS: I also realize the service rep from my HSA company gave me a completely wrong number. 

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I will need to ask @dmertz to double check me, but if you are the owner of the HSA, then you need to adjust your thinking in two ways.

First, as long as your insurance coverage is still "family", then your limit for 2020 is still $8100.  It is not reduced by your wife going on Medicare, if the coverage otherwise remains the same. If your wife's employer canceled her coverage and made it a single HDHP covering you only, or the employer transitioned her to a different single medical coverage that works with Medicare and placed you in a single HDHP, then your contribution limit is reduced as you calculated. 

Second, it is absolutely allowed for your wife to contribute her catch-up contribution to an HSA in her own name.  If either spouse is the primary covered person for a family HDHP, then both spouses are eligible to contribute as long as they don't also have other disqualifying coverage.  However, her contribution limit for 2020 will be $916 as she is ineligible starting December 1, and it is too late to make a retroactive contribution for 2019.  Whether you want to open that account for just $916 is up to you.  

[Anonymous]

The rules say to have a HSA the individual must be covered under a high deductible health plan

if either spouse has family coverage under a HDHP, both spouses are treated as having family coverage under a HDHP. 

so you can make a catch-up contribution to an a/c established for her.  the law requires the catch up be made to the taxpayer's own HSA.  

while my example showed splitting the 7100 base contribution limit between the two of you the law says it can be split as you choose with a limit.  her's can't exceed 3254+ the 917 catch-up. so if you contribute none of the base to her a/c you can contribute 3550+3254 + the 1000 catch up to your a/c and the 917 catch up to her a/c 

[dmertz]

" I am the one who is the "primary owner for the HSA from my prior job and always contributed for my wife in there."

To be clear, HSA contributions are individual contributions.  The contributions to your HSA are your contributions, not contributions of your wife even though they are based on you having family HDHP coverage that covers your wife and that distributions can be used to pay your wife's or dependent's medical expenses.  It's the family contribution limit that is shared between you and your wife who is also by the family HDHP plan, not the contributions themselves.

The HSA is owned by you even though is it was established to receive contributions made through your former employer.  Other than the fact that that is were your former employer made deposits of your HSA contributions, it doesn't really have anything to do with your former employer.  Any entity can deposit to that account contributions made on your (not your wife's) behalf.

I agree with HACKITOFF and Opus 17.  Also, my calculations agree with those provided by HACKITOFF.  Since you mentioned contributing $8,100 to your HSA, presumably you yourself are over age 55.  As long as your wife signs up for Medicare during the initial enrollment period, which it appears that she will do, her Medicare eligibility will begin on December 1, 2020 and she will be ineligible to make an HSA contribution for December 2020.  (The annual limit is prorated for each month).  If the HDHP coverage remains family coverage for December, you'll still be able to contribute the full family limit plus your own $1,000 catch-up (totaling $8,100) to your own HSA and your wife could contribute 11/12 of the $1,000 catch-up, $916.67, to her own HSA.  If your coverage reverts to self-only coverage on December 1, 2020, your maximum contribution to your HSA would be 11/12 * $7,100 + 1/12 * $3550 + $1,000, a total of $7,804.17 and your wife's maximum contribution would still be $916.67.  These calculations assume that all of the family contribution limit is allocated to you and none to your wife.

[Serge]

Wow.

She will have the family HDHP to December and after that and I will keep my family HSA plan. Unknowingly, it seems that is a benefit which allows me to make the full $8100 without pro-rating BECAUSE it is my HSA and not hers and on top she can make a $916.67 to her own HSA.

Thank you all for your time and these outstanding explanations!