Stop making contributions to your HSA up to 6 months before applying for Medicare Part A only or Part A and Part B or starting your Social Security retirement benefits.
If you contribute to your HSA during those 6 months, you may face a 6% excise tax and an income tax for those contributions. This "6-month lookback" starts when you enroll in Medicare or begin your Social Security retirement benefits.
The Last Month Rule
There is a testing period of twelve months. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties. For example, let's look at the individual above who became HSA-eligible on December 1.
HSA contribution deadline
You generally have until the tax filing deadline to contribute to an HSA. In most tax years, this is at or around April 15.
You have until the tax filing deadline (typically April 15) to make contributions to your HSA for the previous year.
You lose eligibility as of the first day of the month you turn 65 and enroll in Medicare. Example. Sally turns 65 on July 21 and enrolls in Medicare. She is no longer eligible to contribute to her HSA as of July 1.
Drawbacks of HSAs include tax penalties for nonmedical expenses before age 65, and contributions made to the HSA within six months of applying for Social Security benefits may be subject to penalties. HSAs have fewer limitations and more tax advantages than flexible spending accounts (FSAs).
Last-month rule.
If you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered to be an eligible individual for the entire year, so long as you remain an eligible individual during the testing period as discussed below.
Unlike many other health plans, the balance in your HSA account carries over indefinitely. This means that any extra money you have at the end of the year does not disappear or reset. Instead, it remains in your account and continues to grow over time.
Yes, you can contribute to your HSA for a partial year. Your contribution will be prorated based on the number of months you were eligible for the HSA. The exception is if you use the last-month rule, which lets you contribute the full year's amount if you're eligible on December 1.
The grace period must not extend beyond the fifteenth day of the third calendar month after the end of the immediately preceding plan year to which it relates, but may be adopted for a shorter period.
Form 5498-SA reports regular and rollover contributions on HSAs, Archer Medical Savings Accounts (MSAs), and Medicare Advantage MSAs (MA MSAs) as well as the fair market value of an HSA, Archer MSA, or MA MSA at the end of the tax year.
Under current regulations, individuals who apply for Medicare Part A or Part B after reaching age 65 are automatically given six months of retroactive health coverage, which invalidates their ability to make or receive HSA contributions for any of those months they were deemed to be covered.
If you can receive benefits before that deductible is met, you aren't an eligible individual. Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can't generally make contributions to an HSA. FSAs and HRAs are discussed later.
By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your out-of-pocket health care costs. HSA funds generally may not be used to pay premiums.
Gym memberships. While some companies and private insurers may offer discounts on gym memberships, you generally can't use your FSA or HSA account to pay for gym or health club memberships. An exception to that rule would be if your doctor deems fitness medically necessary for your recovery or treatment.
Form 8889 is submitted with your tax return via Form 1040 or Form 1040-SR to report a distribution from the account, even if it's not taxable. If you took a taxable distribution from your HSA, this is where you report that. You also report contributions and any deductions related to your HSA on this form.
Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes.
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
If you don't have an HDHP, have a family, and require frequent diagnostic medical care, a copay plan may be a better option. Neither an HSA or copay plan is better than the other; you just need to decide which plan meets all of your needs and will benefit you the most.
In other words, if you become eligible under an HDHP by December 1, you have to remain covered by an HDHP until December 31 of the following year (the last day of the 12th month).
Finally, consider which account will give you the most tax benefits. An HSA is taxed in essentially the same way as a 401(k), except it also includes tax-free medical withdrawals, so in that sense, the HSA wins.
Can I cash out my HSA when I leave my job? Yes, you can cash out your HSA at any time. However, any funds withdrawn for costs other than qualified medical expenses will result in the IRS imposing a 20% tax penalty.