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HSA - one spouse goes on Medicare mid-year?


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You have to fill out the contribution limitation for each person separately, then add the monthly amounts together. Because H wasn't covered by the HDHP for the entire year and went on Medicare during the year, fill in -0- for the month he started on Medicare and subsequent following months.

From your fact pattern, it should work out that wife will be entitled to contribute for her half for the entire year and husband's half will be prorated for the number of months covered under the plan.

The instructions for Form 8889 may be more clear.

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Thank you Judy.   

I read the instructions and I am getting a clearer picture on how this works.   

Follow up question, since they have no dependents, she will have to change her coverage to Self-only since he cannot be covered under her policy after he goes on Medicare - Correct?   Otherwise the policy disqualifies both of them?

Thanks

Tom
Longview, TX
 

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"Do I need to sign up for Medicare when I turn 65?

It depends on how you get your health insurance now and the number of employees that are in the company where you (or your spouse) work.

Generally, if you have job-based health insurance through your (or your spouse’s) current job, you don’t have to sign up for Medicare while you (or your spouse) are still working. You can wait to sign up until you (or your spouse) stop working or you lose your health insurance (whichever comes first)"

He can hold off signing up for Medicare until his spouses coverage ends.

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6 minutes ago, cbslee said:

He can hold off signing up for Medicare until his spouses coverage ends.

That is true, and if/when he does sign up late, there is a special form to tell the government why he didn't sign up at age 65 so that he isn't permanently charged a higher (penalty) rate.

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In addition to the form, a letter from the employer confirming the coverage and the date the coverage ended is required.

I have these letters in my files for both myself and my spouse.

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1 hour ago, cbslee said:

In addition to the form, a letter from the employer confirming the coverage and the date the coverage ended is required.

I have these letters in my files for both myself and my spouse.

That is not the fact pattern.   Couple are not losing coverage because of employment change.   They get their health insurance via the ACA exchange.   He will definitely sign up for Medicare when eligible mid-year.   She will drop ACA coverage as well when she gets to 65.  So they have family coverage now, and they get the additional catch-up contribution because they are over 55.   They have maxed out the last couple of years.   

They want to know how much they can contribute this year.   Client seems to think that he can still contribute the max this year if they do it before he changes to Medicare.   I don't think so, and I think that they need her to change the policy to self only.

My first thought on how to fill out his form 8889 is $4150 for Jan-May and $0 for the rest of the year.  I think I fill out her form 8889 with $4150 for Jan-May and $4650 for months Jun-Dec.   Add it all up and divided by 12 to come up with $6171 as the contribution limit.

Then I saw this in an article from the Tax Advisor, and I started wondering if she still gets the full family contribution limit.

Spouses with family coverage
If either an individual or the individual's spouse has family coverage, both are considered to have family coverage. Likewise, if one spouse has self-only coverage and the other has family coverage, the maximum contribution limit is the maximum for family coverage, and the limit is divided between them by agreement (Notice 2008-59, Q&A 17). If the spouses have different family coverage plans, only the one with the lower deductible is counted for HSA eligibility purposes (Sec. 223(b)(5)).

The family contribution amount can be allocated between eligible spouses any way they want but must be divided equally among the spouses if they do not agree on a different division. However, no HSA contribution is allowed for an ineligible spouse. The IRS has ruled that an eligible individual does not fail to be an eligible individual merely because the individual's spouse has non-HDHP family coverage, if the spouse's non-HDHP does not cover the individual. Consequently, that individual may contribute to an HSA (Rev. Rul. 2005-25).

I may be doing some wishful thinking, but I went back and read the pub, and it looks like the limitation is on his coverage not covering her.   I don't see anything that says she has to change the insurance policy coverage to self only and that her coverage cannot cover him, even though he is ineligible to contribute.   So if she has family coverage, and they agree to divide the contribution giving 100% to her in Jun-Dec, and still get a full contribution of $8300.   I would fill out his 8889 as above, but then fill out her 8889 using $8300 for Jun-Dec.   

I am still searching and not sure I know enough yet to give them the right answer.   

Thanks for your help, and feel free to punch holes in anything I have above.

Tom
Longview, TX

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All I am trying to say is that they have the option, if they want, to continue their Family Coverage HDHP combined with the HSA,

as long as they don't sign up for Medicare. I am not ignoring your fact pattern.

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On 5/6/2022 at 2:19 PM, BulldogTom said:

I don't see anything that says she has to change the insurance policy coverage to self only and that her coverage cannot cover him, even though he is ineligible to contribute. 

The difference between family and self-only is the number of persons covered, so if/when the wife drops coverage for the husband, the policy will become self-only unless there is someone else still on the policy so that it covers more than one person.

They currently have family coverage and can avail themselves of the monthly family HSA contribution rate during those months, but once he is dropped from that ACA policy, at that point the wife's policy will become self-only for purposes of the monthly HSA contribution rate starting with the month he stops being covered by the ACA policy and goes on Medicare Part B.  With that month and going forward, he becomes an ineligible person for the HSA contribution and his monthly contribution limit is -0-, and wife's monthly maximum contribution will be for the self-only amount.

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1 hour ago, BulldogTom said:

Thanks @jklcpa

If I could bug you one more time.   Does my math look right?   $6,171 for 2022 contribution limit?

Tom
Longview, TX

Yes, this is the figure I get too.  For the overall limitation, changing the allocation within the first 5 months won't affect the final annual limitation but will determine which HSA can receive the funds. That may or may not matter to your clients.

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8 hours ago, jklcpa said:

Yes, this is the figure I get too.  For the overall limitation, changing the allocation within the first 5 months won't affect the final annual limitation but will determine which HSA can receive the funds. That may or may not matter to your clients.

Thank you Judy, you are the best.

Tom
Longview, TX

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19 hours ago, BulldogTom said:

If I could bug you one more time.   Does my math look right?   $6,171 for 2022 contribution limit?

If both spouses are over 55, they can each contribute $1,000 catchup to their own HSA.  If they split the family amount equally, the wife's limit would be $4,650 for the year - and the husband's 5/12 of that or $1,937.50 for a total of $6587.50 - they can of course split the $7,300 any way they want for the first 5 months - the catchup cannot be split.

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1 hour ago, TexTaxToo said:

If both spouses are over 55, they can each contribute $1,000 catchup to their own HSA. If they split the family amount equally, the wife's limit would be $4,650 for the year - and the husband's 5/12 of that or $1,937.50 for a total of $6587.50 - they can of course split the $7,300 any way they want for the first 5 months - the catchup cannot be split.

Yes, I agree with those final figures. 

To be totally clear and expand on your statement about each being able to contribute the $1,000 catchup, the husband's additional contribution will be limited to 5/12th for those months prior him going on Medicare.  Husband's form 8889 will show $1,520.83 ($3,650 x 5/12) on line 3 and $416.67 ($1,000 x 5/12) on line 7.

@BulldogTom Tom, sorry I was wrong and guess I should stop trying to help anyone at this point. 

 

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49 minutes ago, jklcpa said:

Tom, sorry I was wrong and guess I should stop trying to help anyone at this point. 

Judy, please don't.  I've learned a lot from your posts.  I assume (hope) you are joking.  I make more mistakes than I care to admit.  The great thing about this board is that there are always plenty of proofreaders.

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On the other hand, I do understand Judy's response.

In the past I probably have posted too many times about topics that weren't really in my area of expertise.

So I have been really trying to limit my posts to stuff I actually know something about.🤨

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1 hour ago, cbslee said:

trying to limit my posts to stuff I actually know something about

Yes, well, that is the thing because I do know something about this and made another stupid mistake on here by shortcutting my calculation by not separating out the catchup.

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6 minutes ago, cbslee said:

Judy,

I apologize, my post was about what I tend to do not about what you did.

No, I do that too and did not take offense so there is no need to apologize.  It just bugs me when I make stupid mistakes in haste.

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Judy and Tex,

Thanks so much.   I was on the road for a while (Longview to Reno to El Centro to Yuma and back to Longview) and I appreciate that you were there to help out.   I think I got this now thanks to you guys.

Tom
Longview, TX

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