How Do I Maximize My HSA for Retirement?

Us-dollar-made-forom-coins-1558391“Aging creates unique circumstances for those with health savings accounts (HSA). Generally, the impact of approaching age 65 is to limit the ability to contribute to your HSA.”

While hitting 65 can limit HSA contributions, there are some ways to squeeze every dollar into your HSA even as you approach retirement age.

A recent article, “Approaching Retirement? Five Tips to Maximize Your Investment HSA,” explains that it’s pretty clear healthcare costs in retirement will be one of the eight largest expenses. Fidelity estimates that the average couple will need $275,000 in today’s dollars to cover healthcare expenses throughout retirement. However, it’s key to remember that your HSA (Health Savings Accounts) can be used to pay for Medicare parts B and D, long-term care premiums, long-term care, and normal medical, vision, and dental expenses in retirement.

Both you and your spouse should have your own HSA, the year you turn 55. This lets you get all the catch-up contributions you deserve. IRS regulations require that each HSA catch-up contribution be associated with one Social Security number, so you and your spouse each need an HSA to max out your contributions. It’s not important which spouse has more. This is because you can each spend your HSA dollars to pay the other’s eligible medical expenses.

Even if you’re prohibited from contributing to your HSA because you’re enrolled in Medicare, you can still grow that account by moving it to an investment-focused HSA. There may be a transfer fee to move your money to the new HSA, but the receiving HSA may be willing to offset that transfer out fee. Just ask.

In many married couples, the breadwinner and insured party is often the older of the two spouses and that older spouse will usually enroll in Medicare as soon as possible. However, in some instances, he or she continues to carry the family health care policy at work to cover his or her spouse. This can be an opportunity because the spouse has family coverage, and in the eyes of the IRS, can make the family contribution to her, or his, HSA. The older spouse who’s on Medicare can’t contribute to an HSA.  However, as a family, they can make the family contribution to the HSA and one catch up amount of $1000 (assuming the contributing spouse is 55 or older). If both spouses have their own HSA’s for catch up purposes, it’s easy to shift who makes the contribution from the spouse covered by Medicare to the spouse who is primarily covered only by the high deductible. However, it can’t be payroll deducted from the ineligible spouses’ income, so you may sacrifice the FICA savings.

If you are employed and covered by your employer’s health care plan, you may be able to delay enrollment in Medicare. If you’re currently receiving any kind of Social Security or railroad retirement benefits, you’re automatically enrolled in Medicare Part A, so this won’t apply to you.

Postponing your enrollment in Medicare and your acceptance of Social Security retirement benefits lets you extend your eligibility to make contributions to your HSA.  However, you must be employed and covered by health insurance through your current employer. Your insurance must also be what is known as creditable coverage. In addition, if you postpone your Medicare enrollment, there are some specific timing requirements you must meet when you do transition from your employer plan to Medicare.

Reference: (undated) “Approaching Retirement? Five Tips to Maximize Your Investment HSA”