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March 04, 2011
What Should You Do With Your Health Savings Account When You're Eligible For Medicare?
You do have certain choices. For example, my wife will be 65 this year, so she'll be eligible for Medicare a year earlier than I will be. We already try to contribute the maximum allowed to our health savings account (HSA) annually. In this situation, we needed to find out how much we could contribute in the year she turns 65 in June and how to use our HSA once she enrolls in Medicare.
According to Roy Ramthun, the president of HSA Consulting Services, when my wife becomes a Medicare beneficiary, she will no longer be allowed to contribute to an HSA. She'll have to prorate contributions for the six months she has an HSA plan before she enrolls in Medicare this year. The maximum HSA contribution is now $6,510 for family plans and $3,050 on individual coverage. If you're 55 or older, you can make an additional $1,000 contribution each year.
If my wife enrolls in Medicare when she turns 65 this June, she could contribute 5/12 of the $6,150 for family coverage ($2,562.50) plus 5/12 of a catch-up $1,000 contribution ($416.67). The IRS Instructions for Form 8889 for a worksheet can help you calculate how much you can contribution in these kinds of situations to your Health Savings Account.
Even though my wife can't continue to contribute to an HSA once she enrolls in Medicare, she's still allowed to withdraw HSA funds tax-free for qualified health care expenses, which includes co-pays, deductibles, dental care, prescribed drugs, vision care and a portion of long-term care premiums. That portion is based on age. My wife will also be allowed to use HSA money to pay Medicare-related premiums tax-free. That works for Medicare Part B premiums as well as for Medicare Advantage or Medigap plans.
Posted by Wiley Long at March 4, 2011 07:01 AM