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  • Writer's pictureChris Stein, CFP®

Caution – Health Savings Accounts and Filing for Social Security

We have blogged many times about different situations where filing for benefits while still working may be advantageous.  Or other times filing then immediately requesting those benefits be suspended can be an effective strategy to maximize your Social Security.  I will not be repeating the description of those potential benefits here, but if interested you can easily find them on this blog site through the Search Box.  Instead I would like to point out a situation where there is a potential downside to filing and suspending (or really just to filing at all).

This story starts with Health Savings Accounts (HSAs).  HSAs are accounts where a qualifying person can put money aside into an account on a pre-tax basis for the purpose of paying for qualified medical expenses without incurring taxes.  These accounts are coupled with High Deductible Health Plans (HDHPs) with the intent that the HDHP pays for large medical expenses and the money in the HSA will go to cover out-of-pocket expenses on a pre-tax basis.  You may be wondering why we are discussing HSAs on a Social Security blog site.  Well, it all comes down to the qualification rules on contributing to an HSA.

To qualify for an HSA:

  1. You must be covered under a HDHP

  2. You have no other health coverage (with limited exceptions)

  3. You are not enrolled in Medicare

  4. You cannot be claimed as a dependent on someone else’s tax return

Number three in that list is where the connection to Social Security comes in.  When you file for Social Security (SS) benefits and you are over the age of 65 you are automatically enrolled into Medicare Part A and you cannot opt-out.  Therefore, if you are still working and are at a job that offers the HDHP+HSA combination for health insurance benefits you cannot file for SS benefits without jeopardizing your ability to fund the HSA.  This would most often happen in the case that a person who is still working wanted to open the door to spousal benefits for their spouse by filing and suspending.  They remain suspended to maximize their future monthly SS benefit, and since they are still working they may very well not need the SS money now, but they sabotage their health plan benefits at work because they no longer are eligible to contribute to the HSA.

With the increasing popularity of the HSA+HDHP combo that can often times be attractive in its ability to control health insurance premiums, this will become a bigger and bigger issue as people try to use the file and suspend strategy while they remain working.  I will call it one of those little hidden “gotchas”.  If the ability to opt-out of Medicare Part A is ever instituted this problem may go away, but for now it is something to consider before filing for benefits while still working.

For more information on this topic, please use the play button below to listen to our audio blog.

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