Pub. 7 2017-2018 Issue 4

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S January • February 2018 11 • cannot be eligible to be claimed as a dependent on someone else’s tax return, • is eligible for $1,000 catch-up contribution beginning at age 55, and • cannot be enrolled in Medicare. The last bullet causes some confu- sion, so let’s explore that for a moment. Medicare Enrollment In our industry, it is common knowl- edge that someone in the United States is eligible for Medicare once they reach age 65. What most of us do not fully un- derstand, but make certain assumptions about, is how an individual enrolls in Medicare. There are essentially two ways indi- viduals can enroll in Medicare. 1. Automatic enrollment: The Social Security Administration automatically enrolls individu- als in Medicare Parts A and B if they draw Social Security (either retirement or disability) benefits or Railroad Retirement benefits before reaching age 65. These individuals are automatically enrolled in the month of their 65th birthday. 2. Active enrollment: Indi- viduals must actively enroll in Medicare if they reach age 65 but do not draw their Social Security benefits, or if they elect to delay Social Security benefits beyond their 65th birthday. HSAowners can contribute a prorated amount to their HSAs based on their ac- tual month of enrollment (assuming they still meet the other qualifying factors). All of that seems fairly straight forward, but what if someone is still working after age 65? Can he delay Medicare enrollment, maintain his HDHP, and contribute to the HSA as he had before? Again, the answer is yes. Delaying Medicare Enrollment Individuals who do not automati- cally enroll in Medicare at age 65 can delay enrollment if they meet certain requirements—including having qual- ified health insurance through their employers. But individuals who delay enrollment without proving they had qualifying health insurance at age 65 and beyond, may have to pay higher Medicare premiums or a “late-enroll- ment penalty”. In some cases, this penalty may apply for as long as they’re enrolled in Medicare. Another issue to be aware of occurs when an individual delays enrollment and is covered under a qualified health plan with her employer, but that employ- er has less than 20 employees. In this case, the individual is treated as though she does not have qualifying coverage and must enroll in Medicare. If she fails to do this, the late-enrollment penalties will apply. The individual may elect to continue coverage under the employer’s plan if it makes financial sense, but once enrolled in Medicare, she can no longer contribute to an HSA. These scenarios can also apply in unique ways for married couples where one spouse is enrolled in Medicare and one is not. That, however, is a topic best discussed in a separate article. Now, let’s review one of the main benefits of having an HSA after age 65. Paying Medicare Premiums Before we discuss the benefits of having an HSA after age 65, let’s dis- cuss how individuals pay their share of Medicare premiums. If an individual is drawing Social Security benefits while enrolled in Medicare, the premiums are deducted directly from his monthly payment. If an individual is enrolled in Medicare and not drawing Social Secu- rity benefits, he can either • submit payments (including au- tomatic payments) directly from his bank account, • pay by check or money order, or • pay by credit or debit card. So howdoes the payment ofMedicare premiums relate toHSAs?Medicare pre - miums for Parts A, B, andD are qualified medical expenses for individuals age 65 and older. Medicare HMO premiums and an employee’s share of premiums for certain employer-sponsored health insurance are also qualified expenses after age 65. To be clear, while Medicare premi- ums are qualified distributions and tax-exempt, other insurance policies that cover copays and deductibles against Medicare (sometimes referred to as Medigap policies) are not. Any Medigap premiums paid fromanHSA are taxable but not penalized after age 65. The Take Away HSAs have a wide variety of benefits that most people simply do not know about or fully understand. It is this type of consumer education that can help people of all generations make better de- cisions both while saving for retirement and using assets wisely in retirement. n In our industry, it is common knowledge that someone in the United States is eligible for Medicare once they reach age 65.