Spouse Contributions to an HSA on COBRA

[crevitch]

I have been laid off, but qualify for medicare, and will be covered when my employee coverage expires.  My wife will be going on to COBRA through the plan from my employer until she qualifies for medicare.   the plan will be a High Deductable Plan.  Can she contribute to an HSA (and deduct the contributions) ?  She has income as a health care worker but is not covered by her employer's plan.

[NCperson]

@crevitch -  She can make direct contributions to the HSA but can't be deducted from the paycheck. 

However, there is complexity as she reaches 65.  You can't contribute to an HSA for the 6 months prior to getting on Medicare, limited to the month your turn 65 (confusing, I know),

Examples. 

I turn 65 in November, 2022 but continue to work and and am covered by COBRA.  I am going to go on Medicare in June, 2023.  I have to stop contributing to the HSA in November, 2022 so that there are 6 months prior to going on Medicare. 

I turn 65 in November, 2022 but continue to work and and am on COBRA.  I am going to go on Medicare in Feb, 2023.  I have to stop contributing to the HSA in October, 2022, which is 6 months prior to going on Medicare, limited to the month I turn 65.

By chance did you unexpectedly run afoul of these rules by the layoff and the move to Medicare while you were contributing to an HSA???????

[NCperson]

@crevitch also, if you turn 65 and sign up for Part A, which is free for most, that constitutes "going on Medicare" and the rules I noted in the prior note applies.   No need to sign up for Part A until you are ready to sign up for Part B as well. 

[Opus 17]

The 6 month rule for Medicare is a good rule of thumb to avoid problems but is not strictly accurate.

Your "initial enrollment period" is the 7 months around your 65th birthday.  If you enroll during your initial enrollment period, your Medicare starts either on the first day of the month that you turn 65, or up to 3 months later. 

https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start

If you enroll after turning 65 and outside your initial enrollment period, your coverage can start up to 6 months retroactively, making you retroactively ineligible to make HSA contributions.  

But as long as your spouse enrolls when she turns 65, her coverage will start the first day of the month of her 65th birthday and you don't have to worry about a 6 month retroactive ineligible period. 

[NCperson]

@Opus 17 

<< If you enroll after turning 65 and outside your initial enrollment period, your coverage can start up to 6 months retroactively, making you retroactively ineligible to make HSA contributions. >>

there is a small nuance here that my post points out. While I agree coverage can start up to 6 months retroactively, it can't start before turning age 65, even if you are beyond your initial entrollment period.

Let's say I want to begin Medicare when I am 65 years and 4 months old.  It can only begin retroactively back to the MONTH I turned 65 and no earlier, even though I am outside my initial enrollment period and it is less than 6 months retroactively.

It is the month before turning 65 that that HSA contributions have to stop in this example.  And that is even complicated because all that means is that the maximum annual contribution calculation stops calculating in that month.  for example, I turn 65 in July, 2022 and begin Medicare any time in the last 6 months of the year,  my 2022 maximum contribution to an HSA is 50% (6 months / 12) of ($3650 + $1000) assuming single coverage and it has to be contributed before April 15, 2023. 

[Opus 17]

@NCperson 

That's why I said "up to" 6 months retroactively.  If the spouse delayed 4 months, coverage would begin 4 months retroactive to the month they turned 65.  If the spouse delayed 24 months (age 67), coverage would begin 6 months retroactive to the date they applied (age 66-1/2)

But the real point here is that as long as the spouse enrolls during their initial enrollment period, there is no complicated retroactive enrollment to worry about.