Picking up where we left off last week, recall that Edward has opted out of Medicare (all Parts) while continuing to be actively at work and covered by his employers “qualified” high deductible group health plan.

As such, both he and his employer can continue to contribute to his HSA.

Now let’s roll the clock forward to when he finally retires.

When he elects to receive Social Security benefits, Medicare Part A coverage will be back-dated 6 months. If HSA contributions continue during those 6 months, they’d be subject to a 6% excise and income tax (if not withdrawn by the end of the tax year).

The good news; Edward can make tax free withdrawals for certain medical expenses, including premiums for Part A and B; also, Part C (Medicare Advantage) and Part D (prescription drug) Plans, but not for supplemental (Medigap) plans.

Lastly, once enrolled in Medicare, Edward can even spend down his HSA for non-medical expenses. Sure, those withdrawals will be subject to ordinary state and federal income taxes (but not the 20% penalty). Presumably however, at a lower rate after retirement.

You see, Edward has a ‘Bucket List’ vacation in mind.

I’m lobbying for the role of Carter.

 [HERE is that Medicare Fact Sheet, again.]