Income and health characteristics aren’t the only elements that factor into this calculation. There may be concerns about health-care coverage for a spouse and dependents, tax implications of making certain decisions, and financial ramifications and penalties incurred with mistakes. The complexity of coordinating private-employer benefits and public-government benefits available to your clients and their families just adds to the opportunity for miscalculation.
Weighing Benefits and Disadvantages
Stepping in for a closer look at high-deductible health plans and HSAs alone illustrates the intricacies of this option, especially as Medicare eligibility approaches.
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Timing is critical. Once you enroll in Medicare, you can no longer contribute to an HSA. But you may choose not to enroll in Medicare at 65 because you want to continue working. Variables here include when to stop your HSA contributions, how to coordinate your employer healthcare with Medicare, and when to take Social Security benefits (see No. 2).
- Social Security benefits trump everything. Once you sign up for Social Security benefits, you automatically are enrolled in Medicare Part A. That means you can no longer contribute to an HSA. In addition, the Social Security Administration provides you with six months of back-pay on your retirement benefits, which could lead to tax penalties on your HSA contributions—unless you stopped those contributes six months ahead of your Medicare enrollment.
- Consider your spouse’s situation. If you continue to work but your spouse takes Medicare, he or she can use the funds from your HSA. If your spouse has been contributing to an HSA but is joining Medicare, you may still be able to use a high-deductible health plan but need to open an HSA in your name to contribute funds. Variables here include decisions about Medicare enrollment and the size of your employer (see No. 4).
- Employers are still in the picture. You may continue working even when you are Medicare eligible, but if you have a small employer or their coverage is not creditable—that may limit your options to postpone Medicare.
- Tax penalties to consider. The potential for tax penalties are numerous when charting muddy HSA, Social Security and Medicare waters. Qualified medical expenses can be withdrawn from HSAs until reaching age 65. At that point, there is no penalty to use your HSA funds for other expenses, like a second home in a warm weather locale. Those funds are subject to normal income tax. Other variables that could lead to penalties include timing retirement from your employer, ensuring you access your seven-month Medicare enrollment window, and prorating your HSA contributions correctly.
Financial advisors increasingly are navigating more elaborate rules and regulations that factor into retirement planning decisions. The health insurance world is changing rapidly, so it’s important that financial advisors ensure they and their clients use these numerous alternatives and options to their benefit. Quite simply, it’s becoming progressively more difficult to find a one-size-fits-all approach that is effective for every person. Individualized needs assessment and personalized evaluation are the new map for this terrain.
Mary Dale Walters is senior vice president of Allsup Inc. Allsup and its subsidiaries provide nationwide assistance for individuals and business navigating the complexities of private and public health insurance benefits before and after retirement. Financial advisors may contact (888) 220-9678 or visit FinancialAdvisor.Allsup.com for more information.