HSA contributions must be prorated for the year an individual reaches age 65

A recent letter from the IRS Office of the Chief Counsel to Sen. Patty Murray (D-WA) confirms that health savings account (HSA) contributions must be prorated for the year in which an individual reaches age 65 and enrolls in Medicare.

IRC Sec. 223(b)(2) provides that an individual may contribute 1/12 of the maximum permissible annual contribution amount for each month that the individual is an eligible individual (to be eligible, the individual must be covered by a high deductible health plan (HDHP) and have no disqualifying coverage, or enroll in Medicare). For 2016, the maximum permissible annual contribution amount is $6,750 for those individuals enrolled in a family HDHP coverage and $3,350 for individuals enrolled in self-only HDHP coverage. In addition, a catch-up contribution is permitted for individuals age 55 and older, so that the maximum permissible annual contribution amount increases $1,000 for each year that an individual is age 55 and older.

The amount of the maximum permissible HSA contribution in the year an individual attains age 65 is prorated based on the number of months the individual is an eligible individual and whether the individual has self-only or other than self-only coverage. In particular, the maximum permissible contribution is based on the number of months the person in not enrolled in Medicare.

The IRS provides the following example. An individual turns 65 in September and is covered by an HDHP until that time and does not have any other disqualifying coverage. For the nine months that she has HDHP coverage before enrollment in Medicare, she would be allowed an HSA contribution of either $5,062.50 if enrolled in family coverage ($6,750 x 9/12) or $2,512.50 if enrolled in self-only coverage ($3,050 x 9/12). In addition, the individual would be allowed a catch-up contribution of $750 ($1,000 x 9/12) into her HSA because she is age 55 or over.

SOURCE: https://www.irs.gov/pub/irs-wd/16-0014.pdf

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