I turned 65 on 03/31/20233. I enrolled in Medicare Part A ONLY so as not to be penalized. I am still working full time and am covered under my employer HDP insurance. Part A only covers some hospitalization and zero doctor visits, labs, imaging, drug coverage. Why am I disqualified from continuing to fund my HSA for those medical expenses?
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If you enroll in Medicare Part A and/or B, you can no longer contribute pre-tax dollars to your HSA. You cannot have any health insurance other than an HDHP.
For more information, check: Health Savings Accounts (HSAs) and Medicare
So when I checked Yes signed up for Medicare Part A it takes you to next screen where you have to mark the months you were covered under HDP OR Medicare/None. If I mark Medicare/None from March 2023 thru end of year the next question is why did you have lapse in coverage? I was covered under employer plan for entire year. Do I mark all months under employer plan?
"If I mark Medicare/None from March 2023 thru end of year the next question is why did you have lapse in coverage?"
Because you correctly marked March through December as Medicare/None, TurboTax knows that you did not have unconflicted HDHP coverage for all of 2023.
So TurboTax needs to find out if you used the last-month rule at the end of 2022 (this allows you to use the full annual HSA contribution limit, even if you did not have HDHP coverage for every month. So TurboTax asks you what type of HDHP coverage you had on December 1, 2022.
If you used the last-month rule, a requirement is that you have to "maintain HDHP coverage" for the following year. Obviously, if you went on Medicare, you did not maintain HDHP coverage for the full year.
So, TurboTax thinks you had lapse in coverage. This is not what you should be worried about. TurboTax really needs to know if you had a failure to maintain the HDHP coverage. And TurboTax will ask you a series of questions - starting with "was the lapse due to a disability" - to see if you need to be penalized.
If it turns out that you had HDHP coverage for every month in 2022, you won't be penalized, so the situation sounds scarier than it probably is. Just go through the interview and, with luck, there will be no penalty.
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