Stopping HSA Contributions (2024)

FAQs

Stopping HSA Contributions? ›

The specific date to stop your HSA contributions will depend on when you apply for Medicare. Once you apply for Medicare, you can no longer receive new HSA deposits from your employer. However, you can use your existing HSA funds to pay for Medicare costs even after you enroll.

The specific date to stop your HSA contributions will depend on when you apply for Medicare. Once you apply for Medicare, you can no longer receive new HSA deposits from your employer. However, you can use your existing HSA funds to pay for Medicare costs even after you enroll.

If you realize you have made an excess contribution before the tax year ends (usually April 15), take it out immediately. You can take out the excess contribution by making a request with your HSA provider, which may involve filling out a form or two.

If you are age 65 or older and enrolled in the HDHP with an HSA, plan to stop HSA contributions six months before enrolling in Medicare. Be mindful that enrolling in Social Security results in automatic enrollment in Medicare Part A.

Keep in mind, if you withdraw the remainder of your account when you close your HSA and don't roll over to another HSA or use the dollars for eligible medical expenses, you must report the withdrawals as income on your income tax return and you will owe a 20% additional tax penalty before age 65.

Under current regulations, individuals who apply for Medicare Part A or Part B after reaching age 65 are automatically given six months of retroactive health coverage, which invalidates their ability to make or receive HSA contributions for any of those months they were deemed to be covered.

For instance, contribution changes to 401(k) or similar defined contribution retirement plans, and to health savings accounts (HSAs), can be made at any time for any reason. Employers may limit changes to once per month for administrative purposes, however, according to Benefit Resource Inc.

The 6% cumulative penalty can be avoided if an HSA Distribution Request Form is received by WEX by December 31 of that same tax year, and if the excess contributions (and any earnings on those excess contributions) are paid out to the HSA owner and are reported on their federal income tax return.

If you are 55 years of age or older but not yet enrolled in Medicare benefits, you can deposit an additional $1,000 per year as a catch-up contribution. 8. Can I increase, decrease, or stop my HSA payroll contribution anytime? Yes, you can change or stop your HSA contribution at any time during the year.

What is the tax penalty for not stopping HSA contributions? ›

If you or any other authorized party, like an employer, make excess contributions to your HSA once you have Medicare, you can be charged a 6% Internal Revenue Service tax penalty on those funds and any interest they accrue until the funds are removed from your account.

The HSA withdrawal rules change a bit when you turn 65. At that point, you can withdraw funds from your HSA without an extra penalty. That's true even if you use the funds for something other than a qualified medical expense.

Money in the HSA may be used to pay or reimburse for medical, dental, optical, and hearing aids. When withdrawn for these expenses there are no taxes due. It can be used to pay for medical insurance deductibles, copays, out-of-pocket expenses, dentist, ophthalmology, audiologist, eyeglasses, and contacts.

If you work beyond age 65 and defer Medicare, however, you will need to stop contributing to your HSA six months prior to receiving Social Security. Once you begin drawing Social Security after your full retirement age, you are required to have Medicare coverage and can no longer contribute to an HSA.

A closure fee of up to $25.00 may apply.

5800 to determine the exact fee. In order to allow for all transactions to settle, your account will be frozen for a period of at least five (5) business days prior to its being closed.

To do this, you must log in to your online account, select “Sell Investments,” then select “Liquidate Entire Portfolio.” If your account had automatic investments, you must also pause your automatic investment to prevent your liquidation from re-investing.

Yes. You can take money out any time tax-free and without penalty as long as it is used to pay for qualified medical expenses. If you take money out for other purposes, however, you will pay income taxes on the withdrawal plus a 20% tax penalty.

With an HSA, there's no “use it or lose it” provision. This is one of the primary differences between an HSA and an FSA. If you put money in your HSA and then don't withdraw it, it will remain in the account and be available to you in future years.

What happens if I contribute more than the IRS annual maximum? If your HSA contains excess or ineligible contributions you will generally owe the IRS a 6% excess-contribution penalty tax for each year that the excess contribution remains in your HSA. It is recommended you speak with a tax advisor for guidance.