Apr 6, 2022
If you’re thinking about enrolling in Medicare or collecting Social Security benefits this year and you still contribute to a Health Savings Account (HSA), there are tax penalties that you need to be aware of! On this episode, I’m going to cover how to avoid triggering those penalties and what to do if you’ve overcontributed to your HSA.
You will want to hear this episode if you are interested in...
- The wonderful world of HSAs [1:16]
- The six percent overcontribution penalty [2:02]
- When should I enroll in Medicare and Social Security if I have an HSA? [4:59]
- Using HSAs to save for retirement [10:22]
- How to fix HSA mistakes you’ve already made [11:26]
Don’t pay the price
It will be no surprise to regular listeners of the podcast that I love Health Savings Accounts. I’m such a huge fan because they are a largely unknown way that you could be saving for retirement. Even if you are utilizing an HSA, you may not know how to get the most out of it. Or you’re making mistakes with it that could cost you down the road.
One common HSA tax penalty is the 6% overcontribution penalty. This penalty triggers when you’re enrolled in Medicare and you inadvertently contribute to your HSA. Enrolling in Medicare means that you can no longer contribute to an HSA. It also means you’re employer can’t contribute to an HSA on your behalf either. If you’re planning to work past 65 and enroll in Medicare, it’s crucial to communicate that with them.
Slow your enroll
The most frequent HSA mistake that people make is not knowing when to enroll in Medicare. Medicare has two standard parts: Part A and Part B. Part A is free as long as you or you’re spouse has worked for at least 10 years and covers the partial cost of a hospital stay. Part B helps cover medically necessary services like doctors' visits, outpatient care, and other medical services that Part A doesn't cover. If your plan is to work past the age of 65 and continue to make HSA contributions, you wouldn’t want to enroll in Medicare until you retire.
Another HSA mistake I see often is people who work past 65 and collect Social Security benefits. For some, this is the best option for their situation. But like I’ve said in numerous past episodes, waiting to collect Social Security until full retirement age, or even age 70, will put far more money in your retirement savings than collecting as soon as you can. However, it’s even more necessary to wait if you want to contribute to an HSA because collecting Social Security benefits will automatically enroll you in Medicare Part A. Listen to this episode for more information on Medicare enrollment and HSAs!
Resources Mentioned
- How To Make The Most of Your Health Savings Account, #1
- The Top Providers For HSA Accounts, #44
- 7 Things To Know About Working and Collecting Social Security Benefits, #74