Use Your HSA to Pay for Medicare Premiums

Use Your HSA to Pay for Medicare Premiums

Ask Bob: How to Fund and Use a Health Savings Account

A reader would like to understand how they can fund and use an HSA.
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Question

I am 57 and I am currently employed and do not have a high deductible health because it is covered by my employer. My plan is to retire by age 59 ½.

Can I deposit funds tax free into an HSA (health savings account) now and use those funds to cover health care expenses between ages 59 ½ and 65?

What is the annual cap for these deposits?

I assume withdrawals from the HSA would be taxed as ordinary income once retired?

Answer

Unfortunately for this reader, you have to be currently enrolled in a qualifying High Deductible Health Plan (HDHP) in order to make contributions into a Health Savings Account (HSA), says Keith Whitcomb, RMA®, director of analytics at PERKY. “If in fact the reader participated in a HDHP, they could make tax free HSA deposits and pay for qualified medical expenses (QME) with tax free withdrawals from the HAS,” he adds.

“There is no age limit on HSA withdrawals used to pay QME, so even after age 65, the reader could continue to pay for QME tax free with the HSA,” explains Whitcomb. And, after age 65, funds can be withdrawn from the HSA to pay for non-QME without penalty. “However, as the reader noted, those withdrawals would be taxed as ordinary income.”

Here are some references for contribution limits, deductible minimums, and qualifications to open a HSA:

2021 HSA contribution limits

The IRS announced an increase in health savings account (HSA) contribution limits for the 2021 tax year. Here is what you need to know about the HSA contribution limits for the 2021 calendar year:

  • An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 — up $50 from 2020 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,000.
  • An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $2,800) can contribute up to $7,200 — up $100 from 2020 — for the year. The maximum out-of-pocket has been capped at $14,000.

And remember, if you are age 55 or older, you can contribute an additional catch-up contribution of $1,000 per year. If your spouse is also 55 or older, he or she may establish a separate HSA and make a “catch-up” contribution to that account.*

*While a married couple under a family qualified high deductible health plan share one family HSA contribution limit, they can contribute up to that shared limit in separate accounts and, if both are age 55 or older, each can make a separate $1,000 catch-up contribution to an account in their own name

Who Can Open a Health Savings Account?

According to federal guidelines, you can open and contribute to a HSA if you:

  • Are covered under a qualifying high-deductible health plan which meets the minimum deductible and the maximum out of pocket threshold for the year
  • Are not covered by any other medical plan, such as that for a spouse
  • Are not enrolled in Medicare
  • Are not enrolled in TRICARE or TRICARE for Life
  • Are not claimed as a dependent on someone else's tax return
  • Are not covered by medical benefits from the Veterans Administration
  • Do not have any disqualifying alternative medical savings accounts, like a Flexible Spending Account or Health Reimbursement Account

Read more here.

See IRS publication 969 for additional details.

Assistant editor Kim McSheridan assisted with this report.

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Email Robert.Powell@maven.io

Question

I am 57 and I am currently employed and do not have a high deductible health because it is covered by my employer. My plan is to retire by age 59 ½.

Can I deposit funds tax free into an HSA (health savings account) now and use those funds to cover health care expenses between ages 59 ½ and 65?

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