Tax Penalty—with Medicare and HSA!

Previously in the blog, HSAs and Medicare Do Not Mix, I covered how you know if you have the type of employer health coverage plan that does not permit you to have Medicare at the same time.  Now I want to get into details about how to avoid getting into a prohibited situation.

Medicare and Employer HSA Coverage

Because you receive a tax advantage when contributing to an HSA with a qualified high deductible plan, the IRS does not allow you to contribute to that HSA and also receive the health premium savings that Medicare provides.  So if you have an HSA with qualified employer health coverage, do not enroll in Medicare if you continue working.

Social Security and Medicare Part A

Not enrolling in Medicare is simple enough to do if you do not take Social Security income benefits.  Once you begin to receive a monthly Social Security check, Medicare Part A automatically begins if you are Medicare-eligible (i.e., age 65).  If you are working, most people do not start Social Security benefits until they reach their Full Retirement Age (FRA, i.e., age 66 if current near-retiree).  After reaching FRA, you can earn as much money as you want without losing any Social Security benefits.

If you choose to take Social Security and continue to work and if you are contributing to a “qualified” HSA, you must pay close attention to timing.  Once Social Security benefits begin, if you are already 65, you will be enrolled in Medicare Part A retroactively for up to 6 months.  To avoid a tax penalty in this case, you must have stopped contributing to your HSA before the Medicare effective date, which could be before the Social Security effective date.

For example, John turned 65 in March of 2012.  He started taking his Social Security benefits at FRA of 66 (March, 2013).  Unaware of the consequences, he has continued to contribute to his qualified HSA.  Since he is taking his Social Security benefits and already 65, Medicare automatically starts retroactively 6 months (September, 2012), and he will have a tax penalty for the contributions made since September, 2012.  (See reference to penalty in next section.)

In the unlikely situation that you were on Social Security Disability benefits (SSDI), on Medicare and go back to work with employer coverage with an HSA, your Medicare coverage could last for up to 93 months—the period that you could not contribute penalty-free to the employer HSA.

IRS Tax Penalty with Medicare and an HSA

If you do contribute to a qualified HSA while on Medicare, there is a 6% tax penalty on any contributions and their income until withdrawal of such amount from your account.  This withdrawal cannot be used for eligible medical expenses.  So if this happens by mistake, withdraw the money as quickly as possible to stop the penalty.

Opting Out of Medicare Part A

To avoid the above situation, you can opt out of Medicare Part A by paying back all the Social Security payments you have received plus anything Medicare has paid for your health coverage.  This could be an expensive proposition if you are unaware of the penalty.  Also, this repayment option is limited to the first 12 months that you are receiving Social Security benefits.

Tax Penalty vs. Coverage

You need to weigh the cost of the tax penalty vs. not having Medicare coverage and/or needing the employer coverage for dependents.  As was explained in the above-mentioned blog post from May, 2011, if you can keep your employer coverage for your dependents, they can have a private HSA which does not affect your Medicare.

Bottom line—If you have an employer plan with an HSA, contact Social Security to find out all the particulars of your situation before taking Medicare or Social Security (1-800-772-1213).  Please consider sharing any wisdom you have gained from your own experience with an HSA and Medicare.  Obviously this can be a tricky situation.

Baby Boomers, Non-Profits Need Your Help!

In a recent blog post, I discussed Encore Careers where retirees combine “purpose, passion and a paycheck.”  Marc Freedman who founded the organization, Encore.org, and coined the term “encore career,” had originally founded an organization called Civic Ventures.  Freedman had written a book called Primetime: How Baby Boomers Will Revolutionize Retirement and Transform America, where he described how Boomers were changing retirement and looking to be more active in making changes in their world during retirement.

Baby Boomers and Civic Engagement in Retirement

In Minnesota along with the Vital Aging Network (VAN), Freedman held forums on Baby Boomers and Civic Engagement.  One of the findings described at these seminars was that Boomers wanted intellectually challenging volunteer experiences that called on their skills and experience from their work life.  They often preferred project management or coordination of a program as opposed to stuffing envelopes and being greeters.

However, the findings also showed that non-profits were not prepared for this new kind of volunteer.  Aside from being board members, non-profits did not have a good process for incorporating volunteers with valuable business or other specialized skills into their organizations.  Like training student teachers or teaching children life skills, initially a job can take longer when incorporating volunteers than if one completes it themselves.  A friend of mine reported that she wants to volunteer at a local senior center where her technology skills and masters degree in gerontology would be a perfect fit, but that she always has to consider how she can help the organization without requiring too much of the director’s time to initially set up the project.

Non-profits and Skilled Retired Volunteers

A recent Forbes blog post, “Why So Few Baby Boomers Are Volunteering,” describes similar findings about Boomers and skilled volunteering, but it also points to some non-profits that are beginning to use volunteers in a more specialized way.  So, Boomers, if you want to help with research, plan specific fundraising events, train other volunteers, put together educational or marketing literature, or provide community outreach and education, first you might need to help non-profits establish a process to more easily incorporate your services into their organization OR find non-profits that already “get it.”

If you have an example of how an organization benefitted from a volunteer’s expertise, please comment below.  Maybe we can all help the growth of more meaningful volunteering!

How to Avoid a Penalty with Medicare and Disability/SSDI

Unfortunately I have been running into people who are receiving Social Security Disability benefits (SSDI) and are paying a premium penalty for their Medicare Parts B and D.  A previous blog post Good News for SSDI Recipients with Medicare Premium Penalty explains that you have a new enrollment period when you turn 65, and the penalty should go away.

Medicare, SSDI and Employer Coverage

One of the pieces that I see happening is that if people on SSDI decide to not take Medicare when they are first eligible (i.e., after receiving SSDI benefits for 24 months), they do not realize that they may have the premium penalty later.  One person did not know that when she lost her husband’s employer coverage, she could have avoided the penalty if she had just filed Social Security form L-564.  The rule is that you have a special enrollment period if you have been covered under a group health plan based on your own or a family member’s current employment status.  Then if you file the L-564 form, you will have 8 months to sign up for Medicare Part B without a penalty.  You have 2 months to sign up for a Medicare Part D plan when you lose creditable employer drug coverage.  While you are covered by that employer group health plan, you can sign up for Medicare Part B at any time without a penalty.

Medicare, SSDI and other health coverage

Other people continue some health coverage that puts them past the 7 months that would be their Initial Enrollment Period which starts after receiving 24 months of SSDI benefits.  This mistake is because whatever coverage they have, they do not know that it is not the same as the group employer/union health coverage described above.  Some people may have a type of COBRA coverage or state health plan or individual coverage.  Any of these do not provide an option for another penalty-free enrollment period before age 65.

So, please, if you receive notification that you are eligible for Medicare due to SSDI, ask questions before deciding not to take Medicare at that time.  (Where to find Medicare answers in your state)  You do not want to be surprised by a penalty later.

One person with whom I worked, is paying over $200 a month for the same Part B coverage that regularly costs $104.90 in 2013 because she did not look into Medicare until her other coverage became too expensive for her.  Now her Medicare is also much more expensive than need be.  If you know of a similar situation, please comment below so we can all learn from other’s experience!

Aging in America—The Cranky Gems in There

Having just experienced two amazing presentations/performances by Teepa Snow on caregiving strategies for care partners of people with dementia, I discovered/rediscovered two pieces of related art. I don’t know for certain, but I would believe it if someone told me that Teepa had started her career in drama.  She has a wonderful gift for vibrantly demonstrating typical responses from people with dementia to different requests made of them.  She explains their “confusing” behavior from a perspective that they are doing the best they can, considering their brains are dying.  In contrast to other medical model categorizations, she names different stages of dementia with the names of gems—diamonds, emeralds, pearls, etc.—directing our attention to what abilities are left, not what is gone.

Cranky Old Man

In a poem that has circulated on the internet, a “Cranky Old Man” describes what he sees from his perspective, but what is missed by the nursing staff and others who work with him in a nursing home.  Excerpts:

What do you see nurses? . . .. . .What do you see?
What are you thinking .. . when you’re looking at me?
A cranky old man, . . . . . .not very wise,
Uncertain of habit .. . . . . . . .. with faraway eyes?
Who dribbles his food .. . … . . and makes no reply.
When you say in a loud voice . .’I do wish you’d try!’

At Fifty, once more, .. …Babies play ’round my knee,
Again, we know children . . . . My loved one and me.
Dark days are upon me . . . . My wife is now dead.
I look at the future … . . . . I shudder with dread.

I remember the joys . . . . .. . I remember the pain.
And I’m loving and living . . . . . . . life over again.

So open your eyes, people .. . . . .. . . open and see.
Not a cranky old man .
Look closer . . . . see .. .. . .. …. . ME!!

The origin of this poem is disputed, but the sentiment is not.  In the US especially, we often write off our aged as useless and demanding of difficult care.  If we look to their history, experience and wisdom, we can find treasure—the gems of a “Cranky Old Man.”

Hello in There

The “Cranky Old Man” poem and Teepa’s artful presentation reminded me of a Bette Midler song from long before we were addressing the Silver Tsunami of Boomers that are approaching retirement and dreading entering that life stage where we lose relevance. Bette’s “Hello in There” song lyrics (video) were not addressing someone with Alzheimer’s or in a nursing home, but simply an older couple living on their own.  Excerpt:

Me and my husband, we don’t talk much anymore.
He sits and stares through the backdoor screen.
And all the news just repeats itself
like some forgotten dream
that we’ve both seen.

You know that old trees just grow stronger,
and old rivers grow wilder every day,
ah, but, but old people, they just grow lonesome
waiting for someone to say,
“Hello in There. Hello.”

So if you’re walking down the street sometime
and you should spot some hollow ancient eyes,
don’t you pass them by and stare
as if you didn’t care.
Say, “Hello in there. Hello.”

All these art forms remind us that as we approach retirement, and inevitably age, we can still look for the cranky (or not) gems in there.  So as Bette sings, look for them as you walk down the street–or enter a nursing home or visit an older relative…

Encore anyone? Your career in retirement

Combining several of our last topics—passion in retirement, working in retirement, and volunteering in retirement —we come up with Encore Careers.  Encore.org promotes “second acts for the greater good”—encouraging people age 50+ to use their experience, skills and wisdom to leave a lasting legacy for the well-being of future generations.

Boomers as “takers”

I love the encore career concept because we Boomers are always cited for taking so much—resources, jobs, services, attention.  Because Boomers are the largest and best educated generation and had the greatest opportunity for jobs and material success up to this point, we are looked upon as “takers.”  Now because we are entering retirement age, we are “taking” a chunk out of Social Security and Medicare. When the Boomers were born, we knew there would be a large number of people hitting retirement age at this time.  What has changed is that thanks to advances in medicine, we are living longer and, thus, stressing those government programs even more.

Boomers as “givers”

Encore careers offer us a chance to prove that we can be “givers” as well.  Even though we often have enjoyed a higher standard of living than our parents and seem to be focused on financial/material success, many Boomers are now at the developmental stage where we want to leave a valuable legacy for future generations.  We can use our gifts of education, training and experience to help provide solutions to social problems.

Encore.org

“Encore career” was coined by Mark Freedman, founder of Encore.org.  Encore careers promote “purpose, passion and a paycheck” in your second act.  One way social entrepreneurs in the second half of life are encouraged is through the $100,000 Purpose Prize.  According to Freedman, “Winners guided by experience, drawing on creativity and anchored in pragmatism set out to find solutions to significant, seemingly intractable social problems.”  Recent winners from Purpose Prize:

Inez Killingsworth, 72, became a housing expert and advocate—just in time for the home mortgage and foreclosure crisis.  In a recent year her organization, Empowering & Strengthening Ohio’s People, provided foreclosure counseling to 8,000 families, helping more than 80 percent stay in their homes.

Susan Burton, 61, a former drug addict who spent years in and out of jail, is an advocate for women who are also former inmates. Her organization, A New Way of Life Reentry Project in Los Angeles, helps female parolees — and their children — start fresh, by offering them housing, legal services and job training.

Judy Cockerton, 61, aims to transform America’s foster care system through her Treehouse Foundation. The nonprofit has created a mixed-income housing community where families who have adopted foster children live among “honorary grandparents” age 55 and older.  Volunteers serve as mentors, tutors and counselors.

Other prize winners have helped the homeless; first-time, at-risk mothers; severely-disabled students; and have projects in other countries like Tanzania, India or Afghanistan.

Encore Career Resources

We may not all be able to start new organizations, but we can start looking for opportunities to pursue our “passion, purpose and a paycheck” through:

Encore.org  

Encore Career Handbook 

Encore Career Handbook Review at:  Review  

AmeriCorps national service network:  AmeriCorps or call 800-942-2677. Volunteer and paid service.

AARP Experience Corps.   Volunteer and paid tutors improve K-3 literacy in disadvantaged schools.

Support from other sources for encore careers

Richard Eisenberg in his blog post, Encore Careers for the Rest of Us,  suggests there are 4 other major players who need to support this movement to make it part of traditional retirement:

–Financial Advisors need to help clients look at retirement in a new way and consider encore careers as an opportunity to help themselves financially while finding meaning in retirement.

–More employers need to offer near-retirees paid internships or bridge jobs like the Intel Encore Fellowships  — six- to 12-month assignments at local nonprofits.

–Nonprofits need to welcome skilled people interested in encore careers.

–Colleges should provide training for people interested in encore careers. See encore.org for list of current programs.

 So Boomers, let’s become known as the generation who started the “purpose, passion and a paycheck” retirement.  Give us your encore performance!