When Should I Stop My Health Savings Account Contributions?

A financial plan available for health care expenses is a health savings account (HSA). Generally, if you have a high-deductible insurance plan, an HSA is included in the benefits. But if you intend to enroll in Medicare, when are your HSA deposits expected to be stopped?

A brief answer: Six months before you intend to sign up for Medicare.

For more information, read on, including guidance about how to manage your HSA deposit.

Medicare Coverage & Your Health Savings Account

If you wait to sign up for Medicare after you become eligible, Medicare provides up to six months of retroactive coverage when you finally enroll. In other words, once your plan goes into effect, Medicare will cover your previous health benefits.

For instance, if you now apply for Medicare but wait until October 2021 to enroll, Medicare would help with covered health care costs dating back to April. But when you are "enrolled" in Medicare retroactively for an additional six months, if you add to your HSA during those months, you may be penalized after the fact. You need to stop depositing HSA funds into your account six months in advance to prevent this.

You can no longer collect fresh HSA deposits from your employer until you enroll in Medicare. However, to pay for Medicare costs, you will use the current HSA funds. As long as you withdraw to cover accepted medical costs from your account, your money is not taxed. This relates to premiums for deductibles, copays, co-insurance, and Medicare Part B or prescription drug plan.

If you are retiring and enrolling in Medicare

Both you and your employer contribute funds to your HSA regarding your employer community coverage. On HSA deposits, you do not pay taxes. You can borrow money tax-free from this account, as long as it is used for medical expenses covered. For HSA deposits, the federal government sets annual limits.

Keep an eye on your HSA deposits, especially the closer you are to retirement. Actions about your HSA must be taken by both you and your employer. Create a transparent plan with your boss for exactly when you plan to retire and opt out of the benefits of employer health insurance. This will not only make the transition to Medicare easier, but it will also help you escape future fines.

Also Read : Medicare Plan Terms Employers Need to Know

You will use the current HSA funds to pay for health care benefits after you retire and enroll in Medicare. Although you can't deposit new cash funds, you can get tax-free access to all the money in your HSA as long as you use it for expenditures approved by Medicare.

If you still work and you sign up for Medicare,

Without retiring from your work, you will sign up for Medicare. If you are already working and qualifying for Medicare, you can forgo insurance benefits from your employer. Your work status does not affect your eligibility for Medicare and vice versa.

However, if you decide to participate in Medicare, you must stop contributing to your HSA, even though you are still working. Six months prior to your Medicare registration, stop depositing funds into your HSA.

Also Read : Your Guide to Retirement Planning in 2021

Decide when you are going to retire and when you are planning to sign up for Medicare; it may not be the same day. You will pro-rate your HSA deposits to avoid hitting the cap and earn the full value if you intend to enroll in Medicare within the year. When you sign up for Medicare, your employer must also stop contributing HSA funds, too, regardless of how long you intend to continue working.

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