A health savings account (HSA) can be a great resource for saving money on taxes while giving yourself a financial foothold in the event of a health emergency. But the rules for HSA contributions change when you turn 65 and enroll in Medicare.
Enrolling in Medicare won’t affect the money you’ve already contributed to your HSA, but it will affect your ability to make new contributions.
Why enrolling in Medicare changes HSA eligibility
Enrolling in Medicare usually means you can no longer contribute to an HSA. An HSA is designed for a person with a health plan that is most eligible for an HSA, and Medicare does not meet that requirement.
You don’t have to liquidate and withdraw any withholding from your HSA, and you can continue to withdraw tax-free if it’s for qualified medical expenses. Most Medicare-related expenses are considered eligible expenses. Notably, the IRS says that Medigap premiums are not eligible expenses for tax-free HSA withdrawals.
Time trap: Medicare Part A can be retroactive
Your 65th birthday isn’t the only date you should keep in mind when evaluating how Medicare can affect your HSA. People who enroll in non-premium Part A after age 65 may have coverage starting six months before they enroll or apply for Social Security benefits. These retroactive contributions don’t start before the month you turn 65, but they are important details of HSA contributions.
Medicare.gov suggests that people stop contributing to their HSA plans six months before retirement or file for benefits to avoid a tax penalty. It is known as the six month look back.
What students should do before and after turning 65 years
If you’re still working, it’s a good idea to contact HR or your benefits administrator before you turn 65. That way, you’ll know how to handle HSA contributions and avoid the tax pitfalls that come with six-month Medicare lookbacks. You must also tell your employer to stop HSA contributions leading up to your enrollment.
Any employee who receives Social Security while employed must check to see if they are enrolled in Medicare. The government automatically enrolls you in Medicare Part A and Part B if you receive Social Security benefits and are 65 years old. In that case, you will receive your Medicare card in the mail about three months before you turn 65.
Anyone getting Medicare should immediately stop HSA contributions, but they don’t have to immediately withdraw. A tax professional can help you navigate any excess contributions. They can also help families navigate HSAs if one spouse is eligible for Medicare and the other is not.
If you can still contribute to an HSA, it’s usually a good idea to cash it in, as HSAs come with a triple tax advantage. The IRS limits are revised to $4,400 per year for single parent or $8,750 per year for family. Those amounts rise to $4,500 and $9,000 in 2027, respectively.
