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Bob's Story: Turning 65 and How It Affects Your HSA

HSAs and MedicareThese days, turning 65 doesn’t mean a person automatically retires.  Every year we see more and more people opting to work beyond their 65th birthday for a number of reasons.  It’s important to be aware that enrollment in Medicare affects how much you can fund an HSA

Meet Bob.  When Bob turned 65 in May, he enrolled in Medicare.  He has had an HSA with his company for the last seven years.  He focused on saving and building his HSA, rather than using it, and has built up a nice balance of around $30,000.  Bob knows that at age 65, he can keep the funds in his account and use it for HSA-qualified medical expenses.  He can also cash the account out, pay taxes on it and take that dream vacation.  
 
But, Bob is a saver.  He saw building his Health Savings Account as an opportunity to have some extra financial security after he retired.  And now Bob feels pretty comfortable about his decision!
 
His employer called our office at the beginning of the year to see what Bob’s options were for his HSA if he enrolled in Medicare, or opted out.  Last year Bob was thinking about staying on full time for his employer and continuing to be on the group insurance plan, but the closer he got to retirement, the more he longed to take advantage of his “golden years” and start fishing more.  He opted to drop to part time hours (much his employer’s delight, as they were able to keep a great seasoned employee for their business) and enroll in Medicare. 
 
When Bob enrolled Medicare, he was no longer eligible to contribute to an HSA.  The IRS requires anyone funding an HSA to have a qualified high deductible health plan.  You can have no other insurance. Medicare is considered “other insurance”. 
 
Since Bob turned 65 in May, he was an eligible individual for four months of that year.  He was able to do a prorated funding into his HSA.  Bob had family coverage, so we used this simple formula (all figures for 2013):   
 
Determining Maximum Funding
 
Because Bob enrolled in Medicare and he’s only eligible for partial contributions, we need to break out the monthly averages based on both his insurance coverage type and his age (over 55 or not). 
 
First, we take the annual maximum for the family policy, and divide by 12 to get the monthly contribution average.
 
$6,450.00 divided by 12 = $537.50
 
Next, we’ll take that monthly amount and multiply it by 4, to include funding for January, February, March and April (his eligible months).
 
$537.50 x 4 = $2,150.00 (total eligible monthly contributions)
 
Since Bob was over 55, he was also eligible for four months of the catch up contribution of$1,000.00. We’ll divide that by 12 to get that monthly average.
 
$1,000.00 divided by 12 = $83.33 (per month)
 
$83.33 x 4 = $333.32 (total catch up contributions for the year)
 
$333.32 + $2,150.00 = $2,483.32 (total eligible HSA contributions for the year)
 
Therefore, Bob’s grand funding total for the year he turned 65 was $2,483.32
If Bob had decided to opt out of Medicare, he would have been eligible to continue to receive contributions into his HSA as he always has in the past.
 
HSAs are a great option for those nearing retirement.  It’s a secure, easy way to build a savings account that is specifically designed to cover the medical expenses that everyone has.  And when you do retire, it gives you extra a little extra security (or a lot, depending on what kind of saver you are) and one less worry to disrupt your relaxing retirement days!

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Posted by HSA Admin at 5/3/2013 6:54:00 PM
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