Turning 65: Medicare & Your HSA

How enrolling in Medicare can affect your Health Savings Account (HSA)

If you have a health savings account and are approaching age 65, it’s important to understand how enrolling in Medicare affects your HSA eligibility. Here are some facts to help you plan ahead,

HSA eligibility after age 65:

  • Contrary to popular belief, you’re not required to enroll in Medicare Part A when you turn age 65. As long as you continue working and remain covered by an IU-sponsored group medical plan, you can delay enrolling in Medicare without penalty until you retire.
  • To remain eligible for the HSA past age 65, you should not be enrolled in any part of Medicare or be receiving Social Security benefits.

Automatic enrollment and Social Security

  • Once you enroll in Medicare, you’re no longer eligible to make or receive tax-free HSA contributions as of the date your Medicare coverage begins.
  • Applying for Social Security benefits also makes you ineligible for tax-free HSA contributions because you are automatically enrolled in Medicare Part A and do not have the option to dis-enroll.  

Medicare Part A backdating

  • If you apply for Medicare or Social Security after age 65, your Part A coverage will be backdated up to six months from your application date, or to the month you turned age 65, whichever is closest.
  • HSA contributions made during this retroactive period may be in excess of your annual contribution limit and could be subject to a 6% excise tax.

Contribution limits and proration

  • When your HSA eligibility changes mid-year (such as due to enrolling in Medicare), your annual contribution limit is prorated based on the number of months you were eligible (eligibility is based on your coverage status on the first day of the month).

Example: If your Medicare Part A coverage begins retroactively on July 1, you would only be eligible to make/receive tax-free HSA contributions for 6 months (January – June). This means you can contribute 6/12 of the annual limit for that year.

IRS rules on excess contributions

  • Any excess or ineligible contributions in your account are subject to a 6% excise tax until corrected.
  • To withdraw the excess amount and any earnings on it, complete the “Excess Contribution Removal” section of the HSA Distribution Form and return it to WEX.
  • This should be done by December 31 of the year the contributions were made to ensure timely processing by WEX.
  • The excess amount will be refunded to you, which you will need to claim and pay income taxes on. Contact WEX at IUSupport@wexinc.com for more information on this process.

After you stop making contributions

  • Your HSA funds remain yours and can continue to grow if invested.
  • Your full account balance will roll over each year and can continue to be used for qualified health expenses, including Medicare premiums, copays, and deductibles.

Spouse considerations

  • Your spouse’s enrollment in Medicare or Social Security has no impact on your HSA eligibility.
  • If your spouse is HSA-eligible and covered under your HDHP, they can open and contribute to their own HSA up to the household limit.

If you’re already enrolled in Medicare or Social Security

If you have an HSA and are already enrolled in Medicare or Social Security, contact AskHR at askhr@iu.edu or +1-812-856-1234 to learn about your options and how to correct any excess contributions.

More details you should know

When you enroll in Medicare mid-year, your contribution limit is prorated to reflect only the months you were eligible.

To calculate your prorated contribution maximum, use the worksheet for the appropriate tax year:

Once you’ve determined your prorated maximum, compare that amount to the contributions you and IU actually made to your HSA during the year. If contributions were made to your HSA above your prorated maximum, you may face a 6% excise tax.

To avoid this, you can withdraw any “excess” contributions and report them as taxable income.

Learn more about excess contributions and how to remove them.

If you have a balance in your account when you enroll in Medicare, you can use the funds to pay for the same qualified healthcare expenses. The money you take out will not be taxed as long as you are using it for approved healthcare expenses, such as deductibles, premiums, copays and coinsurance.

This includes:

  • Medicare Part B and D premiums
  • Medicare Part C premiums
  • IU Blue Retiree premiums
  • Medicare deductibles
  • COBRA premiums

If you are age 65 or older, you also have the option to use your HSA funds for non-healthcare expenses. You’ll pay income tax on those withdrawals, but no penalties.

You should stop your HSA contributions prior to the date your Medicare coverage begins by submitting an Optional Benefit Change online or a paper HSA Enrollment/Change Form to IU Human Resources.

This date could differ depending on your age when you enroll. Coverage always starts on the first day of the month, and in some cases, is applied retroactively.

If you:
Enroll in Medicare during your initial enrollment period (7-month period that begins 3 months prior to your 65th birthday)
Your Medicare Part A coverage begins:
The first day of the month you turn 65. If your birthday is on the first of the month, coverage starts the month before you turn 65.

If you:
Enroll in Medicare during your special enrollment period (8-month period that begins when you lose your group medical coverage)
Your Medicare Part A coverage begins:
Retroactively up to six months prior to the date you applied for Medicare, or your 65th birthday (whichever is closest). This means that you should stop HSA contributions at least 6 months before applying for Medicare to avoid retroactive coverage creating an excess.

If you:
Apply for Social Security benefits at age 65 and older, you are automatically enrolled in Medicare Part A, and do not have the option to dis-enroll.
Your Medicare Part A coverage begins:
Retroactively up to six months prior to the date you applied for Social Security, or your 65th birthday (whichever is closest).

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