You can use your HSA to pay certain Medicare expenses, including premiums for Part A, Part B, Part C (Medicare Advantage), and Part D prescription drug coverage, but not supplemental (Medigap Medigap refers to various private health insurance plans sold to supplement Medicare in the United States. Medigap insurance provides coverage for many of the co-pays and some of the co-insurance related to Medicare-covered hospital, skilled nursing facility, home health care, ambulance, durable medical equipment, and doctor charges. Medigap's name is derived from the notion that it exists to …Medigap
Can I use my HSA to pay Medicare premiums?
A person can use their HSA to pay some Medicare premiums. This includes paying for Medicare Part B and Medicare Part D. A person cannot currently use their HSA to pay for Medigap premiums.
Can I withdraw money from my health savings account to pay Medicare?
Question: You told another reader that people can’t make new contributions to a health savings account once they enroll in Medicare, but they can withdraw the money tax-free from the account to pay Medicare premiums.
Can I take money out of my HSA?
You can also take money out of your HSA to reimburse yourself for qualified medical expenses that you incurred—but did not pay for from your HSA—at any point after the account was established, says Atlanta financial planner Jason Lina.
How much can I contribute to my HSA with Medicare?
Once you enroll in Medicare, the IRS sets your contribution limit to your HSA to zero. What this means is, beginning the first month you’re enrolled in Medicare, you’re not allowed to contribute any monies into your HSA. This limit also pertains to any period of retroactive Medicare coverage.
What is a health savings account?
A Health Savings Account is a savings account in which money can be set aside for certain medical expenses. As you get close to retiring, it’s essential to understand how Health Savings Accounts work with Medicare.
What is HSA 2021?
Medicare and Health Savings Accounts (HSA) Home / FAQs / General Medicare / Medicare and Health Savings Accounts (HSA) Updated on June 9, 2021. There are guidelines and rules you must follow when it comes to Medicare and Health Savings Accounts. A Health Savings Account is a savings account in which money can be set aside for certain medical ...
What is the excise tax on Medicare?
If you continue to contribute, or your Medicare coverage becomes retroactive, you may have to pay a 6% excise tax on those excess contributions. If you happen to have excess contributions, you can withdraw some or all to avoid paying the excise tax.
Can you withdraw money from a health savings account?
Once the money goes into the Health Savings Account account, you can withdraw it for any medical expense, tax-free. Additionally, you can earn interest, your balance carries over each year, and this can become an investment for a retirement fund. Unfortunately, some restrictions come along with having a Health Savings Account with Medicare.
What happens if you don't meet your HSA deductible?
If a person finds they do not meet their high deductible for the year, yet contributed the maximum amount to their HSA, the money can roll over and keep earning interest. When a person retires, and they have money in their HSA, they can use this money to help pay for Medicare expenses.
What happens if you don't use your HSA?
If a person does not use their HSA in a year, the funds can roll over into the next year. The HSA can earn interest, and the government will not tax a person on interest earned. Also, as long as a person uses the funds to pay for qualifying healthcare expenses, they will not pay tax on removing the funds.
What is an HSA?
An HSA stands for a health savings account. People who have HDHPs will often utilize HSAs as a way to save money on healthcare expenses. HDHPs are those that usually cover preventive health services and have a high deductible of at least $1,400 for an individual or $2,800 for a family, according to Healthcare.gov.
Why do people contribute to HSA?
Some people will contribute a significant amount to their HSA in preparation for their retirement. When they retire and start to receive Medicare benefits , they can then use the HSA to pay for health expenses.
What is the Medicare Part B copayment?
For Medicare Part B, this comes to 20%. Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
What is the difference between coinsurance and deductible?
Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
Do HDHPs count towards income?
An employer can also contribute to an HSA, and the contribution does not count toward a person’s income, meaning they will not be taxed.
Can I use my HSA to pay my Medicare Advantage premiums?
Good news – you can use funds in your HSA to pay for Medicare Advantage insurance premiums in the form of a reimbursement. Medicare Advantage plans, also called Part C plans, also come with out-of-pocket costs, like copays and deductibles. You can pay for those costs with your HSA funds, as well.
Can I pay Medicare Supplement premiums from my HSA?
Unfortunately, you cannot pay Medicare Supplements premiums using HSA funds. Medicare Supplement premiums, or Medigap premiums, are one of the only Medicare plan types that you cannot pay for using HSA funds ( Publication 969, 2020 ).
Can I use my HSA to pay for Medicare Part D?
Yes, you can use accumulated HSA funds to pay for Medicare Part D premiums. You can also use your HSA funds to cover copays at the pharmacy.
Can I reimburse myself for past Medicare premiums?
If you have an HSA and didn’t realize you could use those funds to pay for Medicare premiums and other out-of-pocket costs, you can still reimburse yourself.
Conclusion
Contributing to an HSA in your working years is an excellent way to help plan for healthcare costs in retirement.
What happens to my HSA once I enroll in medicare?
When you enroll in Medicare, you can continue to withdraw money from your HSA. The money is yours forever. Your HSA dollars can cover qualified medical expenses — 100% tax-free — if your insurance doesn’t reimburse you.
Are there penalties for having both an HSA and Medicare?
The IRS won’t penalize you if you still have money in your HSA when you enroll in Medicare. You can use your HSA dollars to pay for qualified medical expenses if you want to save money on taxes. Unlike a flexible spending account (FSA), all the unused funds in your HSA will continue to roll over every year.
What costs are not covered by Medicare?
Before you apply for Medicare, you should review your major out-of-pocket costs. This will help you determine the best time to apply for coverage.
What happens when I buy an eligible expense vs. an ineligible expense with HSA funds?
When you turn 65, you will have more flexibility over how you use the funds in your HSA. You can pay for all qualified expenses, free of taxes. You’ll have to pay income tax on money you withdraw to pay for nonqualified expenses. If you’re under 65, you may also owe a 20% tax penalty.
Are my withdrawals for HSA tax-free?
One of the benefits of an HSA is that your withdrawals can be tax-free if used for qualified medical expenses. All nonqualified expenses will be subject to federal and state income taxes.
The bottom line
Enrolling in Medicare can affect your ability to make contributions to a health savings account (HSA). Before you sign up for Medicare, make sure you understand HSA rules to avoid unexpected taxes and penalties. Although Medicare beneficiaries cannot contribute to an HSA, they can still withdraw money from the account.
Can a non-spouse inherit an HSA?
One caution: You should try to spend down the balance by the end of your life, or a surviving spouse’s. Non-spouse beneficiaries do not inherit the HSA’s favorable tax treatment; rather, the HSA’s assets get treated as taxable income.
Do you pay taxes on HSA distributions?
Because you won’t pay income tax on any HSA distributions that are used for qualified medical expenses, it makes the most financial sense to continue to use this money for health care needs, says Fronstin.
How can a health savings account help pay your medical expenses?
People covered by Medicare typically pay monthly premiums, plus deductibles and copays when they receive care. In addition, if you’re on Original Medicare, you may have to pay out of pocket for items Medicare doesn’t cover, such as dental work, hearing aids and eyeglasses.
How much can you contribute to your HSA?
In 2021, the IRS’s HSA contribution limit is $3,600 for individuals and $7,200 for a family. People 55 and older can contribute an additional $1,000 per year. 1
What are the tax advantages of an HSA?
The money you contribute to your HSA, up to the annual limit, is not considered taxable income.