transcript

Health savings accounts are tax-advantaged accounts used for qualified medical expenses.

To be able to save to an HSA, you need to be on a high deductible health plan or HDHP. And really, they're pretty straightforward. But I'm realizing as I have more and more clients with them as they are working past age 65 and staying on their employer health plan, things can get really complicated quick. So here's what you need to know to be able to stay compliant and avoid a tax penalty.

Medicare is not considered a HDHP.

While there's no age limit for being able to save to an HSA, people over the age of 65 in the U.S. are eligible for Medicare. Now, Medicare is not considered an HDHP. So once you're on Medicare, you cannot save any more to an HSA. You can still use the money you've accumulated to pay for qualified expenses when you're on Medicare. You just can't save anything else into the account.

Medicare’s 6-month lookback

Here's the tricky part. It's a 6-month look back. If you are applying for Medicare after age 65, Medicare coverage is considered to begin the later of the month that you turned age 65 or 6 months prior the application date. That's the application date, not the enrollment date. That is what confuses people. They think that they can save to the HSA up until they apply to Medicare, but that's not the way it works. There's that 6-month look back. So 6 months before they applied, they are considered being on Medicare. They can't save to the HSA during that time, although they did, and that's where people get caught up. The look back provision was just put into place to make sure there was no gap in coverage for people transitioning to Medicare. But if you're not clear on the details and the nuances, you can get caught up with that quickly.

HSA Contribution Eligibility is Pro-Rata

The HSA contribution amount is also pro rata. So if you end up only being eligible to save to an HSA for half the year, you can only save half of the annual allowable amount. You cannot front load. So a common question is, can I just contribute the full amount in January while I'm eligible? And the answer is no. You'll have to be able to plan and be proactive and know how much you're going to be eligible for to save the appropriate amount.

When you are on Medicare but your spouse is not.

And one final twist. If you are on Medicare but your spouse is still working, they are on an HDHP, not covered by Medicare, but the HDHP also covers you, they can save to an HSA the family contribution amount. If their HDHP just covers them, they can just save the individual contribution amount.

So if you have an HSA that you're actively contributing to, but you're planning to work past 65, you're not on Medicare yet, you're still on your employer plan, this is all going to be important information for you to know.Look into the details, make sure you're clear, so that you don't find yourself out of compliance and owing a penalty. My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.