Penalization

Can I be penalized for what I contributed recently to my HSA?

You cannot contribute to an HSA in any month that you are enrolled in Medicare. And there's a pitfall inherent in that rule that you need to be aware of. When you finally sign up for Social Security retirement benefits—probably when you're on the point of retirement—and if you're already at least six months beyond your full retirement age (currently 66)—Social Security will give you six months of "back pay" in retirement benefits. It's a generous gesture, but it means that your enrollment in Part A will also be backdated by six months. Under IRS rules, that leaves you liable to pay six months' of tax penalties on your HSA. To avoid the penalties, you need to stop contributing to your account six months before you apply for Social Security retirement benefits.

Contribution

My plan is to keep working until XYZ...From what I've read, if I sign up for Medicare, I can no longer contribute to my HSA. However, I'd like to keep contributing while I am working.

Correct. If you want to continue contributing to your HSA, you'll want to make sure you don't enroll in Parts A or B. You'll want to check with your benefits administrator at work to see if they require you to enroll in Part A. Some employers require this as they would prefer the government pay the claims than themselves, especially since it is free to you. If they require you to enroll in Part A, you can no longer contribute to your HSA. (FYI- if your employer has less than 20 employees you NEED to sign up for Part A and B)

Does employer coverage delay Medicare enrollment?

I've also read that as long as I continue to work and keep my employer coverage I won't pay the penalty for delaying Medicare enrollment

This is correct. So long as you have "creditable coverage" through your employer, you can delay Medicare without penalty.

When do I sign up for Medicare?

You can sign up for Medicare at age 65 or you will sign up once you retire and your employer sponsored coverage ends.

Turning 65: Now What?

I currently contribute to a Health Savings Account (HSA) through my employer. I will be turning 65 years old soon. From what I understand, I can sign up for Medicare beginning three months prior to my birthday until three months following my birthday...if I don't sign up during these months, I'll pay a permanent penalty?

Correct. Additionally, you cannot continue to contribute to an HSA if you are on Part A or B...here's why: You cannot contribute to an HSA if you are enrolled in Part A or B (or both). The reason is in order to qualify for an HSA, you can't have any health insurance other than your HSA-eligible HDHP. Since Medicare Part A and/or B is considered another type of health insurance, enrolling would make you ineligible. If you choose to delay Medicare enrollment because you are still working and want to continue contributing to your HSA, you must also wait to collect Social Security retirement benefits. This is because most individuals who are collecting Social Security benefits when they become eligible for Medicare are automatically enrolled into Medicare Part A. You cannot decline Part A while collecting Social Security benefits. The takeaway here is that you should delay Social Security benefits and decline Part A if you wish to continue contributing funds to your HSA. Finally, if you decide to delay enrolling in Medicare, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty of up to 10% plus be required to pay backtaxes for the contributions made into the HSA plan to count them as income towards your MAGI.