By David S. Edge
Some folks have the ability to pay co-pays and premiums from their Health Savings Accounts (HSAs). However, there are some pitfalls and rules and regulations you need to be aware of when using these types of accounts once you enroll in any part of medicare.
Currently, there is a legal limit of $3,450 for an individual and a family limit of $6,900 for contributions to your HSA for the year 2018. There must be a deductible of at least $1,300 for an individual or $2,600 for family coverage. If you are 55 or older, you can contribute an additional $1,000. Contact your HSA administrator at your company for details on how to do this.
When you are within six (6) months of activating your Medicare A or B, you must stop contributing to your HSA account or you risk a penalty. You get to keep the balance in the account to continue to use for reimbursement of medical expenses.
Besides making new contributions, you can also transfer money out of your IRA or Roth IRA into your HSA account. You do not want to withdraw the money as you would then be exposed to paying taxes on the withdrawal. But if you transfer the money it would be tax-free, as long as the money in your HSA is used for medical bills. Keep in mind that while transferring money out of an IRAor Roth IRA into your HSA, the same maximum contribution limits apply.
Let’s be clear. You withdraw cash out of your IRA or Roth IRA to pay a medical bill. You would then be responsible for the taxes on that withdrawal. However, if you transferred the same money from your IRA or Roth IRA into your HSA account and then paid the medical bill out of the HSA account, you’d pay no taxes. Nice little catch isn’t it?
What medical expenses can I pay for with the money in the HSA account? There is a long list, but the basics include monthly medical plan premiums for Medicare A, B, and D, Medicare Advantage plans, deductibles, co-pays, coinsurance, dental, and vision bills. A few things that folks don’t realize is you can use your HSA for other qualified medical expenses such as guide dog expenses, midwife services, medical equipment, drug addiction treatment, and even medical record charges. But no elective breast enhancement or hair growth products!
The one item you cannot use your HSA account money for is Medicare Supplement or Medigap plan monthly premiums.
Another client asked can they use their HSA account as a retirement vehicle and invest the cash or is it a “use it or lose it” scenario? There is no “use it or lose it” as all remaining balances roll over into the next year, and this is what makes your HSA a good retirement vehicle. Whatever balance in the account is basically treated as IRA money and you would pay taxes upon withdrawing the money. But as long as the money in the account is used for medical reimbursement, no taxes would be due.
If you leave one employer, you can take your HSA balance with you and transfer it to your new employer’s HSA account or a personal HSA at your bank or credit union.
Keep in mind that after you start Medicare benefits, you can no longer make contributions to your HSA account. So, build it up as big as you can before you turn on your Medicare benefits!
For more information see the IRS Publication 969, Health Savings Accounts
