Retirement Income Toolbox

April 15, 2017

Retirement Income Toolbox 4/15/17

I feel the following information I read in an article by Mary Beth Franklin in Feb 20, 2017 worth reading for those who would like some other options for funding health care and their retirement.

Some people choose to pair a Health savings account (HSA) with a qualified high deductible insurance plan as a vehicle to save and grow money earmarked for healthcare use as well as retirement.  This can offer a triple tax-break in this instance.  Contributions are tax-deductible, assets grow tax free and the distributions are tax free if used for qualified medical expenses (Even Medicare premiums are included in the qualified expenses).  Non-qualified distributions are subject to ordinary income taxes and a 20% penalty if withdrawn BEFORE age 65 (Non-qualified withdrawals after age 65 are only subject to ordinary income tax like a traditional IRA).

Most Americans become eligible for Medicare at 65.  Anyone who begins receiving Social Security benefits before age 65 is automatically enrolled in Medicare at age 65.  Those who are not yet receiving Social Security at 65 must enroll in Medicare at age 65 unless they have credible health insurance from an existing employer or are covered by their spouse’s group health insurance plan.  Participation in any type of Medicare (Including Part A, B, C or D) renders you ineligible to contribute to an HSA.

At age 65, you can use your HSA to pay for Medicare Parts A, B, D and Medicare HMO premiums tax-free and penalty free.  If your Medicare premium is automatically deducted from your Social Security check you can reimburse yourself directly from your HAS using those pre-tax dollars to pay for your Medicare premiums.  You cannot use your HSA to pay for Medicap supplemental insurance premiums.

If you are self-employed or work for a small business with fewer than 20 employees, you are out of luck with regards to contributing to an HSA after age 65.  Medicare will become your primary insurer at age 65 and you lose your eligibility to contribute to an HSA on the first month your turn 65.

Currently the maximum amount that an individual can contribute to a HSA is $3,400 ($6750 for families).  There is an additional $1000 in catch up contributions to those over age 55 and older.

In summary, an HSA account paired with a high deductible health insurance plan may be a valid alternative way for some people to pay for their health insurance, save for retirement and get a tax break all in one.  Use the funds only for qualified medical expenses up to age 65 and then you have the option to use them for other expenses but are taxed ordinary income tax for those non-qualified medical expenses.  You lose your ability to contribute to an HSA when you are enrolled in Medicare and no longer working and covered by an employer’s health insurance (or a spouse’s plan) plan.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor