Ask Rusty - About Claiming Social Security when I have a Health Savings Account (HSA)
Dear Rusty: I have reached my full retirement age (66 plus 8 months) and plan to apply for Social Security this month, but I've seen articles which say that when I apply, I must also take Medicare Part A. This, even though I am continuing to work and am covered by my employer's health insurance (a high deductible plan). I contribute bi-weekly into an HSA (Heath Savings Account). I've read that Medicare back dates Part A coverage by 6 months, which suggests I would have had to stop contributing to my HSA six months ago. If this is true, will I need to pay penalties and such to the IRS? I'm not able to find anything else about this topic, and I'm wondering what you might have to say. I have my wife and two children on my employer's HDHP. We contribute $6,000 annually to our HSA and my employer contributes $1,250 on January 1st each year. We can live without the HSA, but the taxes and IRS penalties concern me. Signed: Wanting to Claim SS (but concerned)
Dear Wanting to Claim: I'm afraid that what you've read is correct - it is mandatory for you to take Medicare Part A (inpatient hospitalization coverage) when receiving Social Security benefits after age 65. Medicare Part A is free to you, and even though you are still covered under your employer's creditable high deductible healthcare plan and can delay taking Medicare Part B, you must take Medicare Part A to collect Social Security after 65. Medicare and your employer's plan will coordinate healthcare benefit payments.
That does, however, also mean your Health Savings Account (HSA) will be affected because, as you have found, Medicare will backdate your Part A coverage by 6 months. And because Part A is not a high deductible plan (a requirement for HSA), any contributions you make after the effective date of Part A will be subject to an IRS penalty, and your HSA contributions won't be considered tax-exempt. This will mean the IRS will likely assess a 6% excise tax on any contributions made after your Part A effective date, and you'll need to pay income tax on those contributions.
What you may wish to consider is stopping your HSA contributions now and waiting an additional six months or so to claim your Social Security benefits (to get beyond the HSA penalty phase). This would have the advantage of avoiding the IRS penalty on your HSA contributions and would also increase your Social Security benefit due to Delayed Retirement Credits (DRCs). You earn DRCs at the rate of .677% for each month beyond your FRA that you wait to claim, which means an SS benefit about 4% higher if you wait six months longer to claim SS.
Ask Rusty - Why was Social Security money moved to the General Treasury?
Dear Rusty: Why were the Social Security funds moved from the Social Security account to the General Fund with the government? Is it not then called a tax making it an entitlement? That then gives the government control of our retirement. Most of us feel that someone should be in charge and use the Social Security fund with investments that grow our savings.
I invested my 401K and savings, and the original amount made me money during the Trump years, and I'm now trying to catch up. I make this statement because I draw more from my investments than I receive from Social Security. Signed: Questioning Senior Citizen
Dear Questioning Senior: I'm afraid I must inform you that no Social Security funds have ever been moved from the Social Security account to the government's General Fund - this is a pervasive myth which we have refuted many times over the years. For information, here is one of many articles I have published on this topic, which I hope you find interesting: https://socialse
Someone actually is charged with monitoring our Social Security funds - a board of Social Security Trustees consisting of the Secretaries of Treasury, Labor, and Health & Human Services, as well as the Commissioner of Social Security plus two Public Trustees. Each year the Social Security Trustees do a complete analysis of the Social Security program, especially its financial status and outlook for the future. If you have interest in the Trustee's latest annual report, here is a link to the 2024 analysis: https://socialse
What you will find in the Trustees' report is that Social Security will run out of reserved funds in about 2033, necessitating an across the board cut of about 21% for everyone, unless Congress acts soon to reform the program and restore it to fiscal solvency. The Trustees have warned Congress about this problem for many years, but Congress has yet to find the bipartisan cooperation needed to fix the problem. AMAC (the Association of Mature American Citizens) has steadfastly offered proposals to Congress which would restore Social Security to solvency and will continue to do so with the new 119th Congress, which convened on January 3, 2025.
Please know that we appreciate your feedback and commend you for the wise use of your 401k investments, something that many of our members find necessary to supplement their Social Security. Remember, Social Security was never intended to provide all your retirement income, so earlier saving to supplement your retirement financial needs was a very wise move on your part.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation's staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.