HSA Catch Up Contributions

Submitted by Andrew Rogers on Tue, 2016-11-15 19:26

We have a client who is looking to retire on Dec 26th and start Medicare on Jan 1st of next year. He regularly contributes to an HSA but has under contributed this year. We understand that he can contribute for 2016 until April of 2017. However, we will be on Medicare next year. Can he still contribute the remainder for 2016 in February of 2017 if he is on Medicare at the time of the contribution?



Submitted by David Mertz on Tue, 2016-11-15 21:02

Yes, HSA contributions can still be made for those months that the client was an eligible individual, including December.  However, since the client will not remain an eligible individual throughout the testing period, the last-month-rule cannot be used to make a full-year contribution in the case where the client was not eligible for all 12 months of 2016.

Submitted by William Tuttle on Tue, 2016-11-15 21:25

There is a little known gotcha between late Medicare enrollment and HSA eligibilty. When enrolling in Medicare after 65, you will be retroactively enrolled in Medicare up to six (6) months, but not before 65. There is not an option to avoid this. If the client enrolls in Medicare effective 1/1/2017 and is >= 65.5, then they will have a retroactove enrollment of 7/1/2016. This will mean they are only HSA eligible for the first six (6) months of 2016 and can only make 1/2 of the maximum HSA contribution including the catchup contribution. If they have contributed more than this year-to-date, they will have an excess contribution. 

Submitted by Andrew Rogers on Tue, 2016-11-15 21:28

So with his catchup, he is allowed a $7,750 under a family plan for a full year.  If I understand the last month rule correctly, he will have to remove a month of eligibility due to ending employment during december? $7,750 / 12 months would mean that month would remove $645.83 of maximum contribution.  Correct?  

Submitted by William Tuttle on Tue, 2016-11-15 22:33

I am assuming you didn’t read my previous response, because it was just a few minutes before yours. If your client is > 65 then my previous reply applies. However, if your client is 65 in January and there is no retroactive enrollement then standard HSA eligibility rules apply. If they had qualifying HDHP coverage for the entire year icluding just 12/1, then they would be eligible for the full $7,750. However, if they did not have coverage at the beginning of the year, they are not going to be able to use the last month rule, because you will not have coverage for the testing period (1/1/17 – 12/31/17). 

Submitted by David Mertz on Tue, 2016-11-15 22:34

  • My answer assumed that the client will “start Medicare on Jan 1st of next year” means that Medicare coverage begins on January 1.  If *enrollment* is on January 1 and Medicare coverage ends up being retroactive, as spiritrider said, the eligibility to make an HSA contribution will end on the earlier date that Medicare coverage actually (retroactively) begins.
  • Eligibility for December is based being eligible on December 1.  It doesn’t matter that employment ends in December after that date.  If the client was an eligible individual on the 1st of each of the 12 months in 2016, a full-year’s contribution is permitted.
  • I mentioned the last-month-rule only to point out that it cannot be used in this case.

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