Oct 20, 2017
1. An HSA can be a vital component of your retirement nest egg - It may be tempting to dip into your HSA every time you go to the doctor, but building up your HSA balance can make it a critical asset during retirement. With older age comes higher medical expenses, and having access to tax-free funding for those expenses is invaluable.
2. If you are enrolled in Medicare, you cannot contribute to a Health Savings Account (HSA) - Are you 65 and working? You might be wondering if you should enroll in Medicare benefits. Important to consider is the fact that you are only eligible to make contributions to your HSA if you are covered under a High Deductible Health Plan (HDHP). Since Medicare insurance does not qualify as an HDHP, you are ineligible to make any further contributions once you enroll in any level of Medicare coverage.
3. If you claim Social Security benefits, you will be automatically enrolled in Medicare - As stated above, this can be problematic if you still want to contribute to an HSA. Make sure that you have no future plans to contribute to an HSA before claiming Social Security benefits.
4. In the year that you enroll in Medicare, you can make a pro-rated contribution - If you work through June before enrolling in Medicare benefits, but still want to make the most of your HSA contribution, you could still contribute up to half of that years maximum contribution at any time up to the HSA contribution deadline.
5. You can use your HSA funds to pay for Medicare premiums - Insurance premiums are not generally considered a qualified expense for HSA funds. One exception to this rule is that all Medicare premiums may be paid from an HSA except for Medigap premiums!
6. You can make a one-time rollover from your IRA to your HSA - There are some rules, though. You can only do this once in your lifetime and you can only transfer an amount equal to your remaining maximum contribution for that year. If you already made a contribution to your HSA that year, you will have to subtract that from the maximum to determine how much you can roll over. You must be eligible for an HSA, and remain eligible for 12 months following the rollover. Rollovers can count as a RMD, which may be especially beneficial from an inherited IRA.
7. When you roll over funds from your IRA to your HSA, only the pre-tax dollars get rolled over - Usually, if you have pre-tax and after-tax dollars in your IRA, any distribution of funds would be considered a mix of the pre-tax and after-tax dollars. However, when you roll over IRA funds to your HSA, only the pre-tax dollars will be transferred, which can then be used tax-free for qualifying medical expenses! Whats left is a higher percentage of after-tax dollars in your IRA, which may also make a Roth Conversion more attractive.
8. If you name your spouse as beneficiary of your HSA, it becomes their own at your death - Naming your spouse as an HSA beneficiary is a great strategy because the surviving spouse becomes the owner of the account. They can use those funds tax-free for qualifying medical expenses and even make additional contributions, if they are eligible.
9. Non-spouse beneficiaries have to pay taxes on the account - A non-spouse beneficiary is not allowed to keep the HSA the way a spouse can. The account would be taxable to the beneficiary in the year that it is inherited.
10. There is a special rule for those who name their estate as beneficiary - If the estate is named as beneficiary, the HSA is reportable on the original owners tax return in the year of death. If the original owner is in a lower tax bracket than their heirs, this could save on taxes.
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