Dangers Lurk Within Health Savings Accounts for Retirees
Health Savings Accounts are surging in popularity — and that can lead to some complications for older workers who enroll in Medicare. Health Savings Accounts (HSAs) are offered to workers enrolled in high-deductible health insurance plans. The accounts are used primarily to meet deductible costs; employers often contribute and workers can make pretax contributions up to $3,350 for individuals, and $6,750 for families; the dollars can be invested and later spent tax-free to meet healthcare expenses. But as more employees work past traditional retirement age, some sticky issues arise for HSA account holders tied to enrollment in Medicare. The key issue: HSAs can only be used alongside qualified high-deductible health insurance plans. The minimum deductible allowed for HSA-qualified accounts this year is $1,300 for individual coverage ($2,600 for family coverage). Medicare is not considered a high-deductible plan, although the Part A deductible this year is $1,288 (for Part B, it is $166). That means that if a worker – or a spouse covered on the employer’s plan – signs up for Medicare coverage, the worker must stop contributing to the HSA, although withdrawals can continue. Failing to do that can lead to a tax penalty.
David Wingate is an elder law attorney at the Elder Law Office of David Wingate, LLC. The elder law office services clients with powers of attorneys, living wills, Wills, Trusts, Medicaid and asset protection. The Elder Law office has locations in Frederick and Montgomery Counties, Maryland.