Posted by Fred Lake

Making The Most of Your HSA When You Turn 65

Making The Most of Your HSA When You Turn 65

The high deductible and Health Savings Account insurance plan is seen more and more frequently.  The Health Savings Account covers qualified medical expenses, and has certain provisions to contributions and withdrawals. Fred Lake is proficient in the regulations concerning Health Savings Accounts, and can advise you on the breaks, allowances, and changes to the Health Savings Account when you turn 65.

    The greatest benefit of the Health Savings Account is the tax breaks associated with the account.  Contributions to your HSA are not subject to income tax, income made in the account is tax-deferred, and funds can be withdrawn without taxes for medical expenses.  Another advantage of the Health Savings account is that it is associated with high-deductible policies, which are a lot cheaper than policies that pay benefits right away.  The premiums also tend to stay at a steady level, which, in today’s health insurance market, is a huge bonus.  A high-deductible plan requires individuals to think about the cost of healthcare, allowing insurance companies to maintain lower premiums since people with high deductible plans tend to use their insurance less, unless there are health issues.

Usually an HSA is available when you have a high deductible insurance plan. The way a high deductible plan works is that your insurance company sets a high limit for you to meet.  Any health related expenses under your insurance policy are your financial responsibility until you meet that deductible.  So, if your deductible is $4,000.00, you will pay for any covered health related costs during the year until your total has reached $4,000.00.  Most health insurance plans have a contract with providers that negotiates a lower than cash rate for health care.  Even though you are paying out of pocket, you are still covered under insurance, and are only responsible for the contracted rate of the service, or what your provider would normally be paid by your insurance at 100% coverage.  Your provider still bills your insurance company, and each visit or procedure is applied toward your deductible.  Once your deductible is met, you usually will have some kind of incentive coverage, where your insurance company will be financially responsible for a larger percentage of your medical expenses.  

If you have a high deductible plan, your insurance company can advise you as to whether you are eligible to make contributions to a Health Savings Account.  If you find that you are eligible, most banks can help you open your HSA, and your employer might even have a recommended institution they use.  You can deposit up to $3,350 into an individual account, or $6,650 if you have family coverage.  If you are 55 or older you can deposit an extra $1,000.00 per year.

The IRS has guidelines to what they consider medical expenses.  Once you turn 65, however, the rules of the Health Savings Account change.  Now you can take penalty-free distributions from the HSA for any reason.   The account is yours, and you can draw what you need from it.  If the expenditure is medical, it will be a tax-free withdrawal.  Otherwise, the withdrawal is simply added to your income and taxed as regular income.  

    One qualifying medical expense that you can use the HSA for is Medicare expenses.  Because Medicare covers only certain services, many people continue to use their HSA for medical purposes exclusively.  At 65 you can use the HSA to pay for Medicare premiums tax-free and penalty-free.  If the premiums are deducted from your Social Security check, you can actually reimburse yourself from your Health Savings Account.  You can also use your account to pay your share of an employer-provided program.  

    You will probably be eligible for Medicare when you turn 65.  If you receive Social Security benefits before you reach 65, you will be automatically enrolled in Medicare once you reach 65 years of age.  If you are participating in Medicare, you will no longer be able to contribute to your Health Savings Account, but, as previously stated, you will be able to continue to use your existing funds in the Health Savings Account until the funds are depleted.

If you are automatically enrolled in Medicare because you are a Social Security recipient, you will know not to make contributions to your HSA.  Usually, if you are not automatically enrolled, you will have filled out paperwork to apply to a Medicare program.  If you work for a small company of 20 people or less, you will also automatically have Medicare as your primary insurance by age 65.  You are able to contribute to your Health Savings Account after age 65 if you withhold applying for Medicare and wait to receive Social Security.  You can also withdraw from Medicare after enrolling if you wish to still make contributions to your HSA, as long as you have not yet started receiving Social Security payments.  If you have begun receiving checks from Social Security, you cannot back out of Medicare, or contribute to the HSA.

Also, if you have been making contributions to your HSA but have not met the maximum contribution for the year prior to becoming ineligible to make contributions, you can make contributions up until April 15 of the following year, up to the total allowed annual contribution.

Contact Fred Lake for assistance and advice on how to get the most from your HSA.  If you are 65, or will be 65 within the next few years.


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Fred Lake
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