taxes

elder woman smiling in semi retired life

18Oct

Does Semi-Retirement Expose You to More Risks?

BlogOctober 18, 2022

Retiring is tricky enough, and retirement planning is also not a walk in the park. Those who decide on a semi-retired life should be aware of a few things before moving forward.

Working for Your Current (and likely last) Employer:

Depending on the company, if you reduce your hours, you may still be eligible for your employer’s retirement plan and health benefits. For instance, if you are still able to contribute to your 401(k) with your employer match while working 30 hours weekly, you may want to consider this as an option. It is a great way to keep the retirement funds increasing, and it is a great potential way to increase your Social Security benefits since you work history will continue and you are still paying into it from each paycheck.

Income Tax

Semi-retirees often find themselves in a higher tax bracket due to retirement income withdrawals, required minimum distributions, Social Security, and the part-time job income that is flowing in. Reducing your work hours and the withdrawals from your retirement accounts is the best way to combat this higher tax bracket. Depending on where you are financially, a Roth conversion may also be an option.

Social Security Risk

CPAs who work before full retirement age and receive Social Security benefits are subject to have their benefits reduced monthly. The exemption limit was $18,960 in 2021 and for 2022 is $19,560. Making more than the limit means your benefits are reduced by $1 for every $2 made over the limit. And once you reach the full retirement age the SSA has calculated, your benefits are reduced by $1 for every $3 over $51,960 in 2022. Please note these limits are predicted to increase for 2023, but announcements for this information are not released until the start of the 4^th quarter.

Healthcare Decisions

Once you are 65 you are eligible for Medicare. However, if you are still working, even part-time and qualify for your employer’s healthcare plan, you will have both plans and will need to work out coordination of benefits. Outside of Medicare Part A, there are premiums. For Part B enrollees pay $170.10 monthly in 2022 with a deductible of $233. Deciding to delay Medicare Part B may result in a penalty. You may even opt into a MediGap or Medicare Advantage Plan based on your needs. Considering your options carefully before you enroll into Medicare and are semi-retired is crucial. The earlier you investigate Medicare options the better off you will be.

19Jul

Having An HSA While on Medicare

BlogJuly 19, 2022

Health savings accounts can be tricky, especially when you are on Medicare. Not only do you need to meet certain criteria to have one, but you need to meet the same requirements to keep contributing to it.

One requirement to have an HSA is a high deductible plan, and you cannot have another health care plan. Since Medicare is considered another health care plan, and one that does not have a high deductible, you are not able to contribute to your HSA once you enroll with Medicare.

However, that does not mean you are unable to use your HSA along with your Medicare plan. You have stockpiled that money to help cover medical costs, and you are still able to use the HSA funds to cover expenses Medicare might not. Or to even help with Medicare premiums, copays, or deductibles.

How does an HSA while enrolled in Medicare?

To maintain and contribute to an HSA you need to be on a health plan that is a high-deductible plan. And you cannot be on any other medical insurance plan. This even means Medicare. Once you are enrolled in Medicare, you are not qualified to use your pretax dollars to contribute to your HSA.

You may be able to keep contributing if you are not enrolled in Medicare at 65. This takes special circumstances, being you are not yet retired or receiving SS benefits.

Is there a penalty for having Medicare and an HSA?

Fortunately, you will not face a late penalty if you have health care from your employer. This means, you have delay Medicare enrollment until you do retire. Retirement qualifies you for the Special Enrollment Period. The same rules apply if you are on your spouse’s employer’s health care plan.

However, if you turn 65 and do not have other coverage, you will be charged a penalty. Once you do enroll in Medicare, your Part B premium will be increased by 10% monthly for each year you did not enroll. Since you are also enrolling late without any special circumstance, you will have to wait until the Open Enrollment Period to sign up.

How can I use my HSA to help with Medicare premiums?

Since an HSA is for medical and healthcare costs, you can use the funds for qualifying expenses such as:

Part B, C, or D premiums
Medicare deductibles
Copays or coinsurance
Dental or vision
Over-the-counter medicines
Out-of-pocket costs

Can I pay Medigap premiums with my HSA?

You can, but you will have to pay taxes on the money you withdraw to do so. A Medigap plan is not a qualified medical expense, which is why you will have to pay taxes on the money taken out of your HSA to pay for it.

Are there tax penalties when using an HSA with Medicare?

You will pay tax penalties if your HSA contributions and Medicare enrollment overlap. The penalty amount will vary depending on your situation, circumstances, and how long they overlapped.

You will be subject to back taxes on any contributions to your HSA made after your Medicare enrollment starts. Plus, your contributions will be added back to your annual taxable income.
You may be hit with an excess tax by the IRS if you have contributed after your Medicare enrollment date. Excess taxes will be an additional 6% (if not more) when you take it out of your health savings account.

The IRS strongly recommends those contributing to an HSA stop doing so six months before they enroll in Medicare. Once you are enrolled in Medicare, the IRS considers the 6 months before your enrollment as a period you had access to Medicare. Stopping before that 6-month period means you should avoid any penalties that could be assessed and saves money, too.