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June 05, 2023 at 10:39 AM
Members of Congress have recently introduced legislation that would change the way Medicare affects health savings account eligibility. Under current law, individuals who continue to work and participate in high-deductible health plans past age 65 cannot contribute to their HSA if they are enrolled in Medicare. They also cannot accept employer contributions to their HSA.
However, these taxpayers are entitled to continue accessing HSA funds they have already accumulated to pay for qualified medical expenses tax-free (including Medicare premiums).
After 65, taxpayers can access their HSA funds without penalty even for non-medical expenses (although those withdrawals are subject to ordinary income tax). The new proposals would change current law by allowing individuals to funds HSAs even after they are enrolled in Medicare, but those individuals would not be entitled to use HSAs to pay Medicare premiums and would not be entitled to penalty-free withdrawals after 65.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about proposals that would allow individuals to continue contributing to an HSA even after enrolling in Medicare coverage.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Byrnes: The rules governing post-65 Medicare enrollment are unnecessarily complicated. Under current law, only certain individuals are eligible to defer Medicare coverage so that they can continue funding HSAs.
All individuals should be entitled to continue reaping the tax benefits of an HSA to cover unanticipated medical expenses. This proposal would eliminate unnecessary complexities and allow older Americans to continue taking advantage of a significant tax break.
