Funding HSA in retirement

[disneysteve]

When I had an HSA plan from my employer, I funded it through payroll deduction.


What happens with an HSA in retirement? I know you don't need earned income to fund it but what does that actually look like? If you fund it with dividend payments or capital gains, do you then get to deduct that at tax time so you don't pay taxes on that money?

 

[cathy63]

Yes, you get to deduct the amount you contribute from your income.

 

[SecondCor521]

As long as you maintain eligibility, which usually means having an HSA-qualified health insurance plan, then you can contribute regular old dollars to your HSA, up to the maximum for your coverage type each year ($3,650 / $7,300 for 2022 IIRC).

It doesn't matter where the dollars come from; money is fungible.

If you do make a contribution to your HSA, then you can take an adjustment to your income. This means that it reduces AGI and anything related to AGI (such as ACA subsidies), and reduces your tax liability also.

You would take the HSA adjustment on Form 8889, where it would flow to Schedule 1 line 13 and then to Form 1040 line 10.

 

[disneysteve]

Yes, you get to deduct the amount you contribute from your income.

Thanks. I figured that was how it must work.

 

[Luvtoride]

Disneysteve/ Cathy, That's good to know.
I am turning 65 this year (still working) and I heard from a colleague who enrolled in Medicare when he turned 65, while still working, that it made him ineligible for the High Deductible Health Ins plan and thus he could NOT participate in the company HSA payroll deduction. I want to make sure I don't run into the same issue before I retire in the next year.
I will let him know about funding his HSA via other NON-earned income sources.

 

[orchid55]

You can only make HSA contributions when you are enrolled in an HSA eligible health insurance plan. Being in Medicare disqualifies you from making any contributions whether from your income or other funding sources.

 

[disneysteve]

You can only make HSA contributions when you are enrolled in an HSA eligible health insurance plan. Being in Medicare disqualifies you from making any contributions whether from your income or other funding sources.

Yes.


Just to be clear, what prompted my question was looking at ACA plans for early retirement. We wouldn't be Medicare age yet. The monthly premium difference between an HSA plan and a non-HSA plan is small so I wanted to figure out if being able to fund the HSA would be worth it.

 

[cathy63]

@Luvtoride -- Your colleague can't contribute to an HSA while he's on Medicare. And, even if you stay in your employer's HDHP after age 65 and wait until you retire next year to enroll in Medicare, you may still have problems. Read this article. https://www.shrm.org/resourcesandto...e-6-month-lookback-for-hsa-contributions.aspx

 

[SecondCor521]

Yes.


Just to be clear, what prompted my question was looking at ACA plans for early retirement. We wouldn't be Medicare age yet. The monthly premium difference between an HSA plan and a non-HSA plan is small so I wanted to figure out if being able to fund the HSA would be worth it.

I think @cathy63 was responding to @Luvtoride, not you.

 

[Luvtoride]

@Luvtoride -- Your colleague can't contribute to an HSA while he's on Medicare. And, even if you stay in your employer's HDHP after age 65 and wait until you retire next year to enroll in Medicare, you may still have problems. Read this article. https://www.shrm.org/resourcesandto...e-6-month-lookback-for-hsa-contributions.aspx

disneysteve, I'm sorry, I didn't mean to hijack the thread away from your question. It did spark my question, which I've been considering since turning 64 a few months ago.

Cathy, thanks for your note and the link to the article. It was very informative. Unfortunately, my company's Benefits department does not advise older employees about these pitfalls and I'm sure that several fall into this problem/ tax liability/ payback situation without any clue!

As for my particular situation, I have sent this article to my FA whom I'm meeting with tomorrow to discuss the strategy we should consider for Medicare claiming (or delaying in my case).
Thanks all.

 

[disneysteve]

disneysteve, I'm sorry, I didn't mean to hijack the thread away from your question

No problem. I just wanted to make sure we weren't confusing two separate issues.

 

[Bamaman]

I was fortunate to have the $ in my HSA to pay my family's healthcare premiums for 6 years until I got on Medicare.

Now, the company puts $585 each yearly into a HSA for healthcare. VIA Benefits sends us our monthly Medicare premiums monthly until it's depleted.

 

[jpeter1093]

Interestingly, I'm on Medicare (and Medigap plan N); but my bank wouldn't know anything and I can freely transfer dollars from my checking account to my HSA with that bank. If I do so, will the IRS get upset?

 

[punkinhead]

I was fortunate to have the $ in my HSA to pay my family's healthcare premiums for 6 years until I got on Medicare.

I was under the impression that HSA funds can't be used to pay health insurance premiums.

 

[Aerides]

I was under the impression that HSA funds can't be used to pay health insurance premiums.

That's my understanding too, only Cobra premiums are HSA-eligible.

 

[SecondCor521]

Interestingly, I'm on Medicare (and Medigap plan N); but my bank wouldn't know anything and I can freely transfer dollars from my checking account to my HSA with that bank. If I do so, will the IRS get upset?

The IRS won't get upset.

However, you will in all likelihood get hit with an excess contribution penalty, which looks like 6% per year on the excess. See Form 5329 Part VII.

Even if you don't tell the IRS about your contribution, your HSA administrator will. They'll send a 5498-SA to the IRS.

https://www.irs.gov/pub/irs-pdf/f5329.pdf

 

[Which Roger]

HSA-eligible ACA plans are a good deal for those who are getting subsidies since the amount contributed to the HSA is deducted from the MAGI used to calculate subsidy amount.

 

[Involuntary Retiree]

Here's a good general discussion regarding HSAs and Medicare that was authored by the Congressional Research Service: https://crsreports.congress.gov/product/pdf/IF/IF11425



It includes the following quote:


"First, although health insurance premiums generally are not considered an HSA-qualified medical expense, this restriction does not apply to individuals aged 65 years and older; these individuals may treat any health insurance premiums (including Medicare Parts A, B, and D and Medicare Advantage premiums) as qualified medical
expenses, except for premiums for Medicare supplemental (Medi-gap) policies."

 

[Involuntary Retiree]

Here's a good general discussion regarding HSAs and Medicare that was authored by the Congressional Research Service: https://crsreports.congress.gov/product/pdf/IF/IF11425



It includes the following quote:


"First, although health insurance premiums generally are not considered an HSA-qualified medical expense, this restriction does not apply to individuals aged 65 years and older; these individuals may treat any health insurance premiums (including Medicare Parts A, B, and D and Medicare Advantage premiums) as qualified medical
expenses, except for premiums for Medicare supplemental (Medi-gap) policies."

This document is a couple of years old, so the contribution limits may have changed, but as far as I know, the other discussions are current law.

 

[cat4ever]

Here's a good general discussion regarding HSAs and Medicare that was authored by the Congressional Research Service: https://crsreports.congress.gov/product/pdf/IF/IF11425



It includes the following quote:


"First, although health insurance premiums generally are not considered an HSA-qualified medical expense, this restriction does not apply to individuals aged 65 years and older; these individuals may treat any health insurance premiums (including Medicare Parts A, B, and D and Medicare Advantage premiums) as qualified medical
expenses, except for premiums for Medicare supplemental (Medi-gap) policies."

So as pointed out above, I don't think this covers Bamaman's scenario as it sounds like he was using his HSA for premiums prior to medicare/age 65:

"I was fortunate to have the $ in my HSA to pay my family's healthcare premiums for 6 years until I got on Medicare."