
If you are approaching age 65 and plan on delaying social security and Medicare and have an HSA plan, be careful of the six month rule.
There are two different Individual Retirement Account (IRA) that a farmer can choose each year. A regular IRA allows the farmer to put money into the IRA and take a deduction for their contribution. The farmer is then taxed on any distribution out of the IRA.
No deduction is allowed to a farmer for a ROTH IRA, however, the farmer is not taxed on any distribution assuming that certain requirements are met (age 59.5 and held at least five years, etc.).
A Health Savings Account takes this one step further. A deduction is allowed up front, however, when any money is removed from the HSA, it is non-taxable as long as it is used for qualified medical expenses.
We commonly call this a double benefit, i.e., deduction up front and non-taxable at the end.
In order to take advantage of an HSA, the farmer must have a qualified health insurance plan with a high-deductible which is either directly for the farmer or their family.
The individual limit is $3,650 for 2022 and the family limit is $7,300 with an extra $1,000 for those age 55 or older.
A farmer becomes eligible for Medicare and once you are on Medicare you are no longer eligible for contributing to a HSA on your behalf.
The enrollment in Medicare may substantially reduce the amount of contributions that a farmer can make to an HSA. If a farmer starts taking social security before age 65, then they are essentially automatically enrolled in Medicare at age 65 and can no longer contribute to an HSA.
If the farmer waits until after age 65, then there is a six month rule they have to worry about. When you enroll in Medicare after age 65, you are deemed to enroll six months before your application date or age 65 whichever is later. It is at that earlier date when you are deemed to no longer be allowed to do an HSA contribution.
If you are approaching age 65 and plan on delaying starting social security and Medicare and have an HSA plan, make sure to review all of these rules. If not, you may find a unpleasant surprise.
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