Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

Reply
Valued Pioneer
Posts: 3
Registered: ‎04-01-2017

HSA Contributions Prior to Enrolling in Medicare

I would like to make the maximum 2017 contribution of $7,750 to my HSA account before I enroll in Medicare Part A and become subject to the prohibition on contributing to HSA accounts.  I would like to know if the strategy I describe below would accomplish that goal without incurring tax penalties (or other such problems).

 

Background Info:  I recently turned 65.  My wife will not turn 65 until later in 2018.  I am still employed, have a qualified health insurance plan (no penalty for delaying Medicare), and do not plan to retire until at least next year.  I am aware of the retroactive 6-month coverage once I enroll in Part A, which effectively prohibits me from contributing to an HSA account for 6 months prior to enrolling--that is central to my question, below.  …  The problem is that my employer contributes $125 to my account every month, and I was told that those contributions would not be exempt from the "6-month prior" prohibition.  (Even with a 20% penalty, it would not make sense to stop these payments.)

 

  1. Prior to May 31 (to be safe), I make the maximum contribution for the year, ignoring the monthly employer contributions for June-December.  This would be a total of $7,750 of my own money and the employer contributions through May.  
  2. Prior to the end of 2017, I follow procedures to "remove" the additional $875 post-May employer (“excess”) contributions.
  3. During our open season, I switch to a standard option of some sort or retain my HDHP (with the automatic switch to an HRA), to be effective at the beginning of 2018.
  4. At the same time (early December), I apply for Medicare Part A, to be effective the first of January 2018. 

Would this allow me to make the maximum 2017 family contribution without violating limits and prohibitions, or would the post-May employer contributions be treated differently than would "normal" excess contributions?

 

Thanks.

 

Valued Pioneer
Posts: 3
Registered: ‎04-01-2017

Re: HSA Contributions Prior to Enrolling in Medicare

Follow up:  an H&R Block agent, in an online chat, confirmed that this would work--I could remove my excess contributions before taxes were due to avoid paying the penalty.