28 Dec Can I save in my health savings account after age 65?

Q. I will be 65 in April. I am employed, and my spouse, who is also working, will be 65 in May and is also covered by my company’s healthcare, which includes prescriptions. I intend to contribute the max amount into my health savings account (HSA), including the over age 50 extra in 2022. We are in good health, and thus far our medical bills are for annual checkups and a prescription for glaucoma. We plan to work until at least 67. I understand I would have to give up my HSA to enroll in Medicare and have Medicare as secondary insurance. What factors should I take into consideration when trying to decide what to do?
— Still working

A. We’re glad you’re considering the options for health care.

It’s also important to understand the rules before you decide.

IRS rules say you can no longer contribute pre-tax money to your HSA once you’re enrolled in Medicare, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

However, if you are still working and covered by an employer qualified health plan and not yet receiving Social Security retirement benefits, you can delay Medicare enrollment beyond age 65, DeFelice said. Given your lack of current tax deductions, you may want to consider delaying Medicare enrollment until you retire, he said.

If this is the case, you can keep contributing to your HSA by not enrolling in Medicare right away, he said.

“Ultimately when you retire and no longer have health coverage through your employer, you can then enroll in Medicare without facing a late enrollment penalty,” he said. “The same rules apply if you have coverage through your spouse’s job.”

In your example, a married couple has health insurance through one person’s employer. The employed person turns 65 years old but isn’t planning to retire yet.

“The couple can both stay on the employer’s health plan. If it’s an HSA-qualified plan, they can continue to contribute,” DeFelice said. “The couple can both enroll in Medicare when the employed person retires. They’ll qualify for a special enrollment period because they’ll lose their prior coverage after retirement.”

At that point, you won’t be able to contribute to the HSA anymore, but you will be able to use funds from it toward future healthcare costs, including Medicare premiums, without paying any tax.

DeFelice notes that you’ll pay tax penalties if your HSA contributions and your Medicare enrollment overlap.

“Because of this the IRS and Medicare recommend that you stop contributing to your HSA six months before you enroll in Medicare to avoid these penalties,” he said. “This is especially true if you’re enrolling in Medicare later.”

When you enroll in Medicare after you turn 65, the IRS will consider you to have had access to Medicare for six months prior to your enrollment date, he said.
“So as you are contemplating what age to retire, be sure you plan accordingly and stop making your HSA contributions at the right time,” DeFelice said.

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This story was originally published on Dec. 28, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.