I turned 65 in April and am retiring unexpectedly. Are my 2020 HSA contributions considered excessive, since I am still in my initial Medicare eligibility period?

Forum|Forum|5 years ago
June 9, 2020
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Opus 17

Employee

You are not eligible to contribute to an HSA for any month that you are covered by any other insurance, including Medicare. I suppose you do not have to enroll in Medicare when you turn 65, but most people do because there are penalties for enrolling late. Assuming that you did enroll in Medicare, then your HSA contributions for 2020 are limited. If you had single coverage, your annual maximum is $3550, plus $1000 catch up provision for being over age 55. That works out to $379.16 for each month that you were enrolled in an eligible HDHP with no other healthcare coverage. If you were enrolled in a family HDHP, then your annual maximum contribution is $7100 plus $1000 catch-up contribution, or $675 per month of eligibility. Eligibility is determined by what kind of insurance coverage you have on the first day of each month.

Also, if you were only enrolled in a qualifying HDHP in 2019 for part of the year, but made maximum contributions using the last month rule, you will owe an additional penalty for excess contributions since you do not meet the test to use the last month rule for 2019 if you enrolled in Medicare during 2020.

BraveFalconAuthor

Thank you for the reply! My company is mandating an August 1st retirement date. So, I stopped my HSA contributions immediately upon finding out. They advised me to signup for Medicare now, with an August 1 start date. My HDHP coverage will end on July 31st and they don’t want me to be without insurance. I found one IRS bullet point that states “employees who have delayed their Medicare enrollment beyond their initial Medicare eligibility (age 65), may not make contributions to an HSA in the sic months prior to enrolling in Medicare”. This was what made me wonder, because I am still in my initial Enrollment eligibility right now.....Jan-March, April, May-July. Make sense? Thanks again!

Opus 17

Employee

It’s talking about backdated enrollment in Medicare.

Enrolled in Medicare.

Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. This rule applies to periods of retroactive Medicare coverage. So, if you delayed applying for Medicare and later your enrollment is backdated, any contributions to your HSA made during the period of retroactive coverage are considered excess.

I’m not quite old enough (yet) to understand the odd details of Medicare enrollment. If you enroll effective August 1, then you seem to be eligible to make 7 months worth of contributions. However, if you enrolled August 1 but your enrollment was backdated to (for example) February 1, then you would only be eligible to make 1 month of contributions. I don’t know enough about Medicare to know when someone’s enrollment might be considered retroactive. Hope this helps.