Date: August 30, 2016
If you’re over 65, and eligible but not enrolled in Medicare, can you still contribute to a health savings account? Just because you’re 65 and eligible for Medicare, it doesn’t mean you can’t have an HSA. The key is whether you’re enrolled in Medicare or not.
Medicare enrollment at age 65 is not automatic. It’s only once you elect to take Social Security that you’re automatically enrolled in Medicare Part A, and would not be able to make or receive future contributions to an HSA. However, if you’re still working, and want to delay taking Social Security benefits, then you would be eligible to continue contributions to an HSA.
If you can delay Social Security benefits beyond age 65 and if you are still working, it could be financially advantageous for you. The longer you can put off Social Security, the more your payments will increase. People who keep working after age 65 often delay enrolling in Medicare Part A and Part B, too, if their employer’s insurance picks up expenses that Medicare doesn’t cover.
There are a couple of caveats to consider. One is that companies with less than 20 employees can require you to enroll in Medicare when you turn 65.
Another is the six-month rule. If you apply for Medicare Part A six months after your 65th birthday, your coverage could be made effective retroactively six months. In this case, HSA contributions made in the previous six months may be subject to a tax penalty. To avoid the penalty, work with your accountant to refund excess contributions prior to the tax filing date.
To summarize: At the point you enroll in Medicare, you become ineligible for HSA contributions.
If you have a choice, should you automatically choose the HSA option? It’s always wise to compare and do a cost-benefit analysis. Weigh your current insurance plan’s deductible and premium, the HSA tax deduction, any employer contribution and your out-of-pocket costs. Compare those to your Medicare premiums and any gap coverage you may need.