Q&A: "If You Start Medicare Part A Mid-Year, What is the Maximum Allowable HSA Contribution for That Year?"

Question and background:

If you start Medicare Part A mid-year, what is the maximum allowable HSA contribution for that year?

My father turned 65 in June of last year and enrolled in Medicare at that time. Before this he was using a high deductible health plan through work and contributing to an HSA. He maxed out his HSA contributions, but does he now need to remove money from the HSA before filing taxes?

Answer:

The maximum allowable HSA contribution gets pro-rated to the month of Medicare enrollment. IRS Publication 969 actually uses an example similar to your father's (see p.6 and below).

In 2013, the HSA contribution limit is $3,250 for an individual and $6,450 for family coverage. Since your father is over 55, he's also eligible for an additional $1,000 of catch-up contribution.

[For readers who are unfamiliar with this . . . you can't be enrolled in Medicare and other health plans--such as the High Deductible Health Plan (HDHP)--at the same time.]

Using the IRS example, someone enrolling in Medicare in June would be eligible for five months of pro-rated HSA contribution limit.

Individual coverage: $4,250 / 12 mos x 5 mos = $1,770.83

Family coverage: $7,450 / 12 mos x 5 mos = $3,104.16

The regulations indicate that someone who's overcontributed can avoid the 6% excise tax on "excess" contributions by:

withdrawing the excess contributions and income earned on them by tax filing deadline (including extensions) for the year contributed, and
including the income earned on those excess contributions in the "Other Income" section of the tax return.

Hope that helps. All the best!