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October 4, 2024

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The $42,725 Secret: Maximize your health savings account contributions. Find out how you could keep contributing after 65 and save thousands in taxes! 

If you have a health savings account (HSA), you’re likely already familiar with its incredible tax advantages.

A health savings account offers a unique triple tax benefit: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are also tax-free. But there’s a common misconception that after turning 65, your ability to contribute ends.

Here’s the truth: under certain conditions, you can still keep contributing to your HSA, saving you thousands more on healthcare costs. This post will explore how you can extend these contributions and continue to grow your HSA balance even after enrolling in Medicare.

tax planning

FAQs

Q1: Can I contribute to a health savings account after age 65?

A1: Yes, you can continue contributing if you are covered by an employer-provided high deductible health plan (HDHP) and have not enrolled in Medicare. Your spouse’s HDHP coverage can also qualify you for further contributions.

Q2: What happens if I enroll in Medicare at age 65?

A2: Once you enroll in Medicare, you can no longer contribute to your health savings account. Enrollment is automatic if you start collecting Social Security benefits, so delaying Social Security can help extend your HSA contribution period.

Q3: How much can I contribute to my HSA after age 65?

A3: You may contribute up to $42,725 during a maximum of 4 ½ years after turning 65 if all eligibility conditions are met. Exact amounts depend on future HSA contribution limits set by inflation adjustments.


The Triple Tax Benefits of a Health Savings Account

Do you have a health savings account (HSA)?

If so, you have one of the best tax-advantaged accounts. HSAs provide a unique triple tax benefit:

  • Pre-tax contributions are tax-deductible
  • The money in the HSA is invested and grows tax-free (just like in an IRA)
  • Withdrawals to pay medical bills are tax-free

Indeed, there is only one thing wrong with HSAs: you cannot make contributions after you enroll in Medicare (usually at age 65).

If you love HSAs as much as we do, you probably would like to continue contributing to your HSA after age 65.

Here’s good news: some people can do so until they are almost 70.

The $42,725 Secret: Maximize Your Health Savings Account Contributions

Not everyone can do this, but if you can, you should consider it seriously. You may be able to make after-age-65 HSA contributions of more than $42,725.

You can continue your HSA so long as three things remain true:

  1. You are (or your spouse is) covered under an employer-provided high deductible health plan (HDHP)
  2. You have no other health coverage
  3. You are not enrolled in Medicare

Your (or your spouse’s) health plan must be a large employer plan for 20 or more employees.

This eliminates you if you’re self-employed or working for a small employer, unless you’re covered by your spouse’s qualifying large employer plan

Health Savings Account Contributions and Medicare Rules

You must not enroll in Medicare when you reach age 65. Once you enroll in Medicare, you can’t make any more HSA contributions.

Health Savings Account Contributions and Social Security

In addition to not enrolling in Medicare at age 65, you must not apply for Social Security. When you enroll in Social Security, you automatically enroll in Medicare and can no longer contribute to your HSA.

You can delay collecting Social Security until the month you turn 70. Doing so enables you to make HSA contributions and increases the Social Security benefits you’ll receive when you collect them.

You must start collecting Social Security the month you turn 70. This means you won’t be able to contribute to your HSA past age 70.

In fact, you’ll have to stop contributing at least six months before you apply for Social Security because your Part A Medicare coverage is deemed to begin six months before the date you apply

All this means you’ll be able to contribute to your HSA for a maximum of 4 ½ half years after you turn 65. This will amount to over $42,725.

The exact amount depends on future inflation adjustments to HSA contributions. Of course, you could stop contributing to your HSA sooner if you wish.

Your health savings account doesn’t need to stop growing when you turn 65. By meeting specific conditions, you could extend your HSA contributions for up to 4 ½ years, potentially adding over $42,725 to your account. This strategy not only maximizes your retirement savings but also provides more resources for future healthcare costs. Remember, delaying Medicare and Social Security enrollment could help unlock these additional years of HSA contributions.

Contact your tax and financial advisors to determine the best moves for your situation.


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