By Do you have a health savings account (HSA)?
If so, you have one of the best tax-advantaged accounts. HSAs provide a unique triple tax benefit:
- Pre-tax contributions are tax-deductible.
- The money in the HSA is invested and grows tax-free (just like in an IRA).
- Withdrawals to pay medical bills are tax-free.
Indeed, there is only one thing wrong with HSAs: you cannot make contributions after you enroll in Medicare (usually at age 65).
If you love HSAs as much as we do, you probably would like to continue contributing to your HSA after age 65. Here’s good news: some people can do so until they are almost 70.
Not everyone can do this, but if you can, you should consider it seriously. You may be able to make after-age-65 HSA contributions of more than $42,725.
You can continue your HSA so long as three things remain true:
- You are (or your spouse is) covered under an employer-provided high deductible health plan (HDHP).
- You have no other health coverage.
- You are not enrolled in Medicare.
Your (or your spouse’s) health plan must be a large employer plan for 20 or more employees. This eliminates you if you’re self-employed or working for a small employer, unless you’re covered by your spouse’s qualifying large employer plan.
You must not enroll in Medicare when you reach age 65. Once you enroll in Medicare, you can’t make any more HSA contributions.
In addition to not enrolling in Medicare at age 65, you must not apply for Social Security. When you enroll in Social Security, you automatically enroll in Medicare and can no longer contribute to your HSA.
You can delay collecting Social Security until the month you turn 70. Doing so enables you to make HSA contributions and increases the Social Security benefits you’ll receive when you collect them.
You must start collecting Social Security the month you turn 70. This means you won’t be able to contribute to your HSA past age 70. In fact, you’ll have to stop contributing at least six months before you apply for Social Security because your Part A Medicare coverage is deemed to begin six months before the date you apply.
All this means you’ll be able to contribute to your HSA for a maximum of four and one-half years after you turn 65. This will amount to over $42,725. The exact amount depends on future inflation adjustments to HSA contributions. Of course, you could stop contributing to your HSA sooner if you wish.
If you want to discuss this HSA strategy, please call me on my direct line at 408-778-9651.