Strengthen financial security in retirement with Health Savings Account

Patricia Hafermann • Benefit Specialist

As you near retirement, there are several important matters to consider—Social Security, Medicare, and of course retirement accounts like a 401(k). Each of these tools is necessary to ensure that you are financially secure in your retirement. However, there is another important tool that can help strengthen your financial security when you retire, Health Savings Accounts (HSAs). HSAs are a versatile financial resource that helps you prepare for health costs in retirement, and give you peace of mind.

What is a

Health Savings Account

A Health Savings Account is an account used with a high deductible health plan that allows you to save money tax free. This means that the funds you contribute to an HSA are not subject to federal income tax at the time of deposit. HSAs can be beneficial for retirees because health costs are a natural part of life as you age, and you can use the money that you save in an HSA to help pay for future medical expenses in retirement.

What Are The Rules?

Although Health Savings Accounts can be a powerful tool for you to use in retirement, it is important to use HSAs correctly and responsibly. Here are some important Dos and Don’ts:

1. You must be covered by a high-deductible health plan with no other coverage.

2. If you enroll in Medicare, you can no longer make contributions to the account.

3. Similarly, if you receive Social Security benefits–this automatically entitles you to Part A, so you cannot contribute to your HSA.

4. You cannot be claimed as a dependent on someone else’s tax return.

5. If you use your HSA for non-medical withdrawals prior to 65, you will pay a 20% penalty.

6. Once you turn 65, you can make withdrawals with no penalty, but you still must pay income taxes on the funds if the funds are not used for qualified medical expenses.

7. For retirees with spouses under 65, if you retiree and enroll in Medicare, but your spouse is still working, your spouse can keep contributing to an HSA if enrolled through the employer. However, the working spouse would need to open a separate HSA. Neither you nor your spouse could continue to make contributions to your HSA. See the below example from www

Dick and Adelle are covered under a family HDHP provided through Dick’s employer. Dick reaches age 65 in July and enrolls in Medicare. Dick’s employer makes HAS contributions and allows Dick to make pre-tax payroll deferrals as well. Dick’s employer continues to provide family HDHP coverage for both Dick and Adelle. Adelle, age 58, can now open an HSA and contribute the family maximum (plus the catch-up as she is over age 55) because she remains covered by a family HDHP and is otherwise eligible.

Adelle can use her HSA for Dick’s medical expenses. Adelle cannot put her HSA contribution into Dick’s HSA and will have to open her won HSA. Dick’s employer will stop HSA employer contributions and cannot allow Dick to defer pay pre-tax into Adelle’s HSA.

8. If you work beyond age 65 (or your spouse works) and have an employer group health plan, you can delay Medicare until a Special Enrollment Period and avoid late penalties. However, there are important coordination of benefit rules depending on the number of employees your employer has, so seek help before delaying Medicare.

If you have any additional questions, you may call Pat Hafermann, Elderly Benefits Specialist with the Aging and Disability Resource Center at (920) 467-4076.

Sources: Published with permission from the Legal Services Team at the Greater Wisconsin

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