HSA Frequently Asked Questions (FAQ)

I. Turning Age 65 and your HSA

Medicare and Health Savings Accounts

1. I keep getting all these notices telling me to enroll in Medicare.  Do I have to enroll in Medicare when I turn 65?

It depends. If you are going to begin drawing your social security income benefits, then you will be automatically enrolled in Medicare and will not have the option to waive out of coverage.

If you are not drawing your social security income yet, and you are currently covered by an active group health plan (like IU’s medical plans), then you can postpone enrollment in Medicare parts A, B & D until you are no longer employed (i.e. retired). Remaining on an active group medical plan allows you to be eligible for a “Special Enrollment Period” once you leave. There is no late enrollment penalty if you sign up for Medicare during a Special Enrollment period.

Postponing enrollment in Medicare allows you to extend the time you have to contribute to your HSA. However, be aware, that if you choose to delay your Medicare enrollment until after your initial eligibility period (age 65), when you do eventually enroll in Medicare, Medicare will set the effective date of your Medicare Part A coverage either back 6 months or to your 65th birthday, whichever is most recent. That may mean your eligibility to make contributions to your HSA will be prorated for the year.

For more information go to the Medicare website and read their “Medicare and You” handbook.

2. What happens if I enroll in Medicare?

Enrolling in Medicare has a major impact on your ability to contribute to an HSA. IRS regulations regarding HSAs stipulate that if you are enrolled in a government-sponsored medical benefit, including Medicare Part A, B, or D, you are ineligible to make or receive tax-free contributions to an HSA. You can, however, continue to use your HSA funds tax-free for your qualified healthcare expenses as long as you own the account.

  • If you enroll in Medicare during your initial eligibility period (at age 65), you should stop contributing to your HSA prior to the first day of the month in which you turn 65, because your eligibility is based on your coverage status on the first day of the month.
  • If you enroll in Medicare after age 65 (after your initial eligibility period) you should stop contributing to your HSA at least six months before you plan to enroll in Medicare. When you sign up for benefits and are over age 65, Medicare will back-date your Medicare effective date retroactive six months or back to your 65th birthday, whichever is closest.

These retroactive effective dates for Medicare can cause you to be ineligible to make tax-free contributions to your HSA for several months of the prior year. This means you will need to calculate your prorated contribution maximum for the year. Any contributions made above that prorated maximum would be considered excess contributions, and must be withdrawn to avoid penalties.

Contact Nyhart for instructions on how to remove “excess contributions” from your HSA at 800-284-8412 or at .

Review IRS Publication 969 and Instructions for IRS Form 8889 for further details.

3. Can I still use my HSA funds tax-free after I turn 65?  After I sign up for Medicare?

Yes!  For however long you maintain a balance in your HSA account you can continue to use that balance tax-free for IRS qualified health expenses.

Additionally, since you are now age 65, the IRS allows you to use the funds in your HSA for other expenses as well.  Any funds that you use for non-qualified health expenses (i.e. rent, groceries, vacation, etc.) you would need to report at year end as “taxable income” and pay taxes on the amount spent, however, you would not have to pay any penalty for using those funds for non-health related expenses.

4. What happens if I don’t withdraw my excess contributions prior to April 15th of the following year?

You must pay a 6% excise tax on any excess contribution and on any earnings on the excess contribution dollars. If in the next year you decreased your maximum contribution by the amount of your excess contribution made the year before, you do not have to pay the 6% excise tax again. However, for as long as you leave the excess contribution in, you will need to pay an annual 6% excise tax on this amount and its earnings.

Please contact your tax advisor if you have additional questions.

Contact Nyhart for instructions on how to remove “excess contributions” from your HSA at 800-284-8412 or at .

Review IRS Publication 969  and Instructions for IRS Form 8889 for further details.

5. I am collecting my spouse’s social security benefits and covered under an HDHP, can I still make tax-free contributions to my HSA?

No. If you are drawing your or your spouse’s social security benefits, your enrollment in Medicare Part A will be automatic and you will no longer be eligible to make contributions to an HSA as of the effective date of your Medicare enrollment. You can stop your contributions at any time by submitting an HSA Enrollment / Change form or by submitting the change online through the Employee Center:

  1. Log in to the Employee Center using your IU username/passphrase and Duo
  2. Select the Benefit Details tile
  3. Select the Optional Benefit Changes tile
  4. Click the green button to Start Optional Benefit Change
  5. To progress through the OBC process, click the Next button in the upper right-hand corner of the screen.
  6. Verify your personal information, and payroll direct deposit and tax withholding details, and make updates if needed.
  7. Click the Start My Enrollment button. On the next screen click the gray Select button next to the event.
  8. Under the ‘Benefit Plans’ heading, select the Health Savings Account tile and make any desired changes.
  9. Review your elections by selecting the Enrollment Preview Statement button under the ‘Enrollment Summary’ heading. Click the X in the upper right-hand corner of the screen to exit the preview.
  10. When you are finished making changes, click the green Submit Enrollment button under the ‘Enrollment Summary’ heading.
  11. A confirmation message will appear on the screen once your elections have been submitted successfully. Additionally, an e-mail confirming your submission will be sent to your IU email address within one business day. If you do not receive an email, your changes were not submitted properly.

Next, you should determine if you have excess contributions for that year. Details on the calculation of the IRS prorated maximum can be found in IRS publication 969. If your contributions have exceeded the IRS maximum, you must work with Nyhart to resolve the excess contribution issue.

If you choose to continue to participate in the HSA plan when you are ineligible to make tax-free contributions, you will need to complete a distribution request form each year to remove all ineligible contributions (IU’s contribution and your contributions) and any earnings on those contributions and then claim those dollars on your annual income tax return as taxable income.

Contact Nyhart for instructions on how to remove “excess contributions” from your HSA at 800-284-8412 or at .

Review IRS Publication 969 and Instructions for IRS Form 8889 for further details.

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