If you have a Health Savings Account, or HSA, turning 65 may bring up an important question: Can you keep contributing once you enroll in Medicare?
In many cases, the answer is no. Once you have Medicare coverage, you generally cannot make new contributions to an HSA. This rule can surprise people who are still working, covered by an employer health plan, and hoping to delay Medicare.
Your existing HSA money does not disappear. You can generally keep the account, invest the balance if your HSA allows it, and use the funds for qualified medical expenses. The main issue is whether you can continue adding money to the account.
What Is an HSA?
An HSA is a tax-advantaged account that works with certain high-deductible health plans. You, your employer, or both may contribute money to the account. The money can generally be used tax-free for qualified health care expenses.
For many people, an HSA is a useful way to save for current medical bills and future retirement health costs. But Medicare enrollment changes the contribution rules.
Can You Contribute to an HSA After Enrolling in Medicare?
Generally, you cannot contribute to an HSA for any month that you are enrolled in Medicare Part A, Part B, or both. This is true even if you still have a high-deductible health plan through an employer.
Medicare Part A is hospital insurance. Medicare Part B covers outpatient care, doctor visits, preventive services, and other medical services. Enrollment in either part may make you ineligible to contribute to an HSA.
You may still use the money already in your HSA after Medicare begins. HSA funds can often help pay for qualified expenses such as deductibles, copayments, dental care, vision care, hearing services, and certain Medicare premiums. However, HSA funds generally cannot be used tax-free to pay Medicare Supplement premiums.
Why Medicare Part A Can Be a Surprise
Some people delay Medicare Part B because they have active coverage through a current employer. That may be appropriate in some situations, especially when the employer has 20 or more employees. But Part A deserves attention too.
Many people receive premium-free Part A because they paid Medicare taxes while working. Because it usually does not have a monthly premium, it may seem easy to enroll in Part A while continuing employer coverage.
However, enrolling in Part A generally stops your ability to contribute to an HSA. If continuing HSA contributions matters to you, you may want to delay both Part A and Part B, if you are allowed to do so based on your work and employer coverage situation.
What About Retroactive Medicare Part A Coverage?
Retroactive Part A coverage is one of the most important HSA planning issues for people over 65. When you apply for Medicare after age 65, Part A may be made effective up to six months before the month you apply. It generally will not start earlier than the month you turned 65.
For example, if you apply for Medicare several months after turning 65, your Part A start date may go back in time. If you made HSA contributions during those retroactive months, those contributions may be considered excess contributions.
To help avoid this problem, people who plan to enroll in Medicare after age 65 often consider stopping HSA contributions up to six months before applying. This may include contributions made through payroll deductions as well as contributions from an employer.
Because tax rules can be complicated, it is wise to talk with a qualified tax professional or benefits administrator before making a final decision.
Can Your Employer Still Put Money Into Your HSA?
Employer contributions count as HSA contributions too. Once you are enrolled in Medicare, your employer generally should not continue making contributions to your HSA for months when you are not eligible.
If you are enrolled in Medicare and your employer deposits money into your HSA, it may create an excess contribution. Excess contributions can potentially lead to tax consequences if they are not corrected.
If you are getting close to Medicare enrollment, consider speaking with your employer's human resources department. Ask how to stop payroll deductions and employer HSA deposits at the right time.
What Can You Use HSA Money For After Medicare Starts?
Even though you may no longer contribute, your HSA can remain valuable. You generally do not have to spend the account balance right away. The funds can remain available for future qualified health care expenses.
After age 65, you may use HSA funds for qualified medical expenses without paying tax. You can also generally use HSA funds for Medicare Part B premiums, Medicare Part D prescription drug plan premiums, and Medicare Advantage plan premiums.
If you use HSA funds for non-medical expenses after age 65, you may owe income tax on that withdrawal. The additional penalty that can apply before age 65 generally no longer applies, but non-medical withdrawals may still affect your taxes.
How Does an HSA Fit With Medicare Supplement Coverage?
Medicare Supplement insurance, also called Medigap, works alongside Original Medicare. These plans may help with certain out-of-pocket costs left by Medicare Parts A and B, such as deductibles, coinsurance, and copayments. Benefits and premiums can vary by plan, carrier, and state.
You generally cannot use HSA money tax-free to pay a Medicare Supplement premium. Still, an HSA may help you pay other qualified medical expenses that come up while you have Original Medicare and a Medicare Supplement plan.
Choosing when to enroll in Medicare involves more than just your HSA. Your employer coverage, the size of your employer, your prescription needs, retirement plans, and your preferred type of Medicare coverage can all matter.
Key Steps to Consider Before You Enroll
- Check your current coverage. Find out whether your employer plan is based on active employment and whether it remains primary after age 65.
- Review your HSA contribution schedule. Include your own contributions and any money your employer adds.
- Plan ahead for Part A. Consider the possible six-month retroactive effective date before applying for Medicare.
- Talk with a tax professional. They can help you understand contribution limits and possible tax effects.
- Review your Medicare choices early. Give yourself time to compare Original Medicare, Medicare Supplement options, prescription drug coverage, and Medicare Advantage plans.
Medicare and HSA rules can feel confusing, especially when you are still working or preparing to retire. Eric can help you understand how your Medicare timing may fit with your coverage goals and explain Medicare Supplement options in a free, no-pressure conversation.