Looking for information about HSA contribution in year switching from ACA to Medicare

[Tom52]

I am will be turning 65 in early December 2017. I always assumed that Medicare would begin for me the month following my 65th birthday, which would be January 1, 2018. There was a recent conversation on this forum about when Medicare eligibility begins. My understanding now, is that since if my birthday is in early December 2017, that my coverage will begin on December 1, 2017. That is assuming I apply in a timely manner.

My concern now is will this be a problem for my HSA contribution for 2017? My wife and I are both covered by an HSA eligible ACA policy. We have already contributed a total of $7,750 into our HSA account for 2017. If I start Medicare on December 1, 2017 will this create a problem tax wise? If so, what would be the correct fix? Wife is not eligible for Medicare until early 2019

 

[MichaelB]

Yes, you contributed too much, and need to recalculate a prorated amount for you (11/12s) and the full year for her. You can still remove the excess, your HDA custodial should have an "excess HSA contribution removal" form. For reference, here's a copy of the one from HSA Bank http://www.hsabank.com/hsabank/~/media/Files/excess_contributions

 

[Gotadimple]

The correct fix is a refund from your HSA administrator. You have made an excess contribution to your HSA account (your wife's contribution is fine). As you've discovered your Medicare eligibility and when you get paid are two separate issues.

Contact your HSA with your eligibility info. They may have a special form for you to fill out. They will calculate the amount to return (1/12 of YOUR annual contribution plus interest earned). They will issue a check to you. It is essentially an overpayment.

They will report it to the IRS, and when you file in 2018 you may be required to pay a 6% excise tax. See the IRS website for form 8889 and instructions. Line 3 of the form helps to calculate what you should have contributed.

See also this detailed explanation as HSA Edge website: http://www.hsaedge.com/2016/11/06/how-to-remove-excess-contributions-to-an-hsa/

This happened to me too. Not a major problem, you're early enough in the year to recover the excess contribution.

- Rita

 

[sengsational]

My HSA admin used to do refunds "for free", but the instituted a fee now. Not an horrific one, but I expect they need to cover the cost of managing the data with the IRS.

 

[bingybear]

one alternate approach would be to count some of the extra as part of the catch up provision. Full year catch up is $1000 for people 55 and older. This must be in the account that is under their name. HSAs don't have joint accounts ... yet.

so you or your wife could use some of the "extra" as catchup depending upon the name on the account.

remember to prorate the catch up for the partial year.

 

[pb4uski]

Would waiting a month to apply for Medicare so it doesn't start until Jan 1, 2018 solve the excess contribution problem? If so, any downsides?

 

[MBSC]

In December, the wife will be on a self-only HSA eligible HDHP if there are no children on the plan. If this is the case, the December self-only HSA contribution needs to be made to her account since it will be her self-only HDHP. So, the entire December contribution for both parties should be withdrawn from his account. The HSA custodian will also calculate and remove the associated gains.

Would waiting a month to apply for Medicare so it doesn't start until Jan 1, 2018 solve the excess contribution problem? If so, any downsides?

If the person is receiving SS, they are automatically enrolled on their eligibility date. If not receiving SS, Part A is retroactive to the initial eligibility date (12/1/2017) when applying within 6 months of initial eligibility. HSA contributions can not be made once enrolled in Part A.

Individuals already receiving Social Security or RRB benefits at least 4 months before being eligible for Medicare and residing in the United States (except residents of Puerto Rico) are automatically enrolled in both premium-free Part A and Part B. People living in Puerto Rico who are eligible for automatic enrollment are only enrolled in premium-free Part A.

Individuals who are not receiving a Social Security or RRB benefit are not automatically enrolled. These individuals must apply by contacting Social Security.

Reference: https://www.cms.gov/Medicare/Eligibility-and-Enrollment/OrigMedicarePartABEligEnrol/

You can sign up for free Part A (if you’re eligible) any time during or after your Initial Enrollment Period starts. If you sign up within 6 months of your 65th birthday, your coverage will start at one of these times:

*The first day of the month you turn 65
*The month before you turn 65 (if your birthday is the first of the month)

After that, your coverage start date will go back (retroactively) 6 months from when you sign up.

Reference: https://www.medicare.gov/sign-up-ch...hen-coverage-starts/when-coverage-starts.html

 

[Tom52]

In December, the wife will be on a self-only HSA eligible HDHP if there are no children on the plan. If this is the case, the December self-only HSA contribution needs to be made to her account since it will be her self-only HDHP. So, the entire December contribution for both parties should be withdrawn from his account. The HSA custodian will also calculate and remove the associated gains.

If the person is receiving SS, they are automatically enrolled on their eligibility date. If not receiving SS, Part A is retroactive to the initial eligibility date (12/1/2017) when applying within 6 months of initial eligibility. HSA contributions can not be made once enrolled in Part A.

I am not currently drawing SS and have no plans to until FRA. Therefore Medicare would not commence until I enroll. I am not clear whether or not I can arbitrarily sign up for Medicare to begin on January 1, 2018. That would be ideal but would not want to have a problem. I think I will go talk to the HSA administrator today, my HSA account is administered by a local bank. I will not be surprised if they are totally baffled by my questions.

 

[meierlde]

I am not currently drawing SS and have no plans to until FRA. Therefore Medicare would not commence until I enroll. I am not clear whether or not I can arbitrarily sign up for Medicare to begin on January 1, 2018. That would be ideal but would not want to have a problem. I think I will go talk to the HSA administrator today, my HSA account is administered by a local bank. I will not be surprised if they are totally baffled by my questions.

Will your current coverage expire on Dec 1? A lot of policies expire on the date that medicare starts. Just for other readers reference, if your born on the first of the month medicare starts on the first of the month before.

 

[Tom52]

Will your current coverage expire on Dec 1? A lot of policies expire on the date that medicare starts. Just for other readers reference, if your born on the first of the month medicare starts on the first of the month before.

I can only assume that my ACA policy would cover me thru Dec. 31 this year. I truly never thought about it ending On Dec. 1.

 

[bingybear]

from link

looks like there are more inter-workings. it also may affect subsidies. But I would still look at using catch up provisions of you just want to not mess with the potential over funding of the HSA

If you have a Marketplace plan, you can keep it until your Medicare coverage starts. Then you can end your Marketplace plan without penalty.

If you like, you can keep your Marketplace plan too. But once your Medicare Part A coverage starts, you’ll no longer be eligible for any premium tax credits or other cost savings you may be getting for your Marketplace plan. So you’d have to pay full price for the Marketplace plan.

Learn about other ways to supplement your Medicare coverage.

When you become eligible for Medicare

Let’s assume you have a Marketplace plan and are turning 65 sometime this year.

Once you’re eligible for Medicare, you’ll have an Initial Enrollment Period to sign up for Medicare. For most people, the Initial Enrollment Period starts 3 months before their 65th birthday and ends 3 months after their 65th birthday.

In most cases it’s to your advantage to sign up for Medicare when you’re first eligible because:

Once your Medicare Part A coverage starts, you won’t be eligible for a premium tax credit or other savings for a Marketplace plan. If you kept your Marketplace plan, you’d have to pay full price.
If you enroll in Medicare after your Initial Enrollment Period ends, you may have to pay a Part B late enrollment penalty for as long as you have Medicare. In addition, you can enroll in Medicare Part B (and Part A if you have to pay a premium for it) only during the Medicare general enrollment period (from January 1 to March 31 each year). Coverage doesn’t start until July of that year. This may create a gap in your coverage.

 

[Gotadimple]

one alternate approach would be to count some of the extra as part of the catch up provision. Full year catch up is $1000 for people 55 and older. This must be in the account that is under their name. HSAs don't have joint accounts ... yet.

so you or your wife could use some of the "extra" as catchup depending upon the name on the account.

remember to prorate the catch up for the partial year.

The OP says they contributed $7750 early in the year. $6750 family contribution plus $1,000. And yes some of that could be counted as catch up but because it's also pro-rated, I wouldn't think the OP could avoid having to do a withdrawal and then ultimately paying the 6% penalty.

- Rita

 

[Tom52]

from link

looks like there are more inter-workings. it also may affect subsidies. But I would still look at using catch up provisions of you just want to not mess with the potential over funding of the HSA

Now I am really concerned, the 2017 ACA HSA eligible policy we have is in my name and covers both DW and me. If I go on Medicare on Dec 1st 2017 does that mean the policy is no longer in effect for DW? If the policy is still in effect for DW but not me, will i still get the same subsidy for the month of December? Am I supposed to contact the insurer to drop coverage on me starting December 1st?

 

[meierlde]

Now I am really concerned, the 2017 ACA HSA eligible policy we have is in my name and covers both DW and me. If I go on Medicare on Dec 1st 2017 does that mean the policy is no longer in effect for DW? If the policy is still in effect for DW but not me, will i still get the same subsidy for the month of December? Am I supposed to contact the insurer to drop coverage on me starting December 1st?

Since the insurer knows your birthday, they will do the dropping automatically. here is a link to how to do this:https://www.healthcare.gov/medicare/changing-from-marketplace-to-medicare/