If you are working past 60 years old, you are probably familiar with how to use your health savings account (HSA) to help pay for qualified medical expenses—and may have even saved extra for unanticipated health care expenses for when you retire.
As you approach age 65, it is essential to understand how Medicare may impact your HSA. For example, you could be subject to tax penalties if you make HSA contributions after enrolling in Medicare. Let’s take a look at how HSAs work with Medicare, how you can use HSA funds to pay for Medicare, how to avoid tax penalties, and more.
Am I eligible to contribute money into my HSA account once I enroll in Medicare?
The short answer is No. An HSA is an account you can use to reimburse yourself for qualified medical expenses with pre-tax contributions. You can put money in an HSA if you meet specific requirements. However, HSA accounts require you to be enrolled in an HSA-qualified health plan. You cannot be covered by another health plan (including Medicare). Because Medicare is considered another health plan, you’re no longer eligible to contribute money to your HSA once you enroll without being subject to penalties.
If you are currently contributing to your HSA and plan to start your Medicare coverage the month you turn 65 years old, make sure all HSA contributions end before your 65th birthday month.
Can I spend from my HSA if I’m enrolled in Medicare?
Yes. Even if enrolled in Medicare, you may keep an HSA if it was in existence prior to Medicare enrollment. You can spend from your HSA to help pay for qualified medical expenses, such as deductibles, premiums, copayments, and coinsurances. This includes monthly premiums for Medicare Parts A, B, C, and D (but not Medigap premiums).
I will be eligible for Medicare this year but do not plan to enroll until I retire. I will remain on my employer’s insurance plan until that time. Can I keep contributing to my HSA?
Yes. If you are eligible for Medicare but do not enroll, you can continue contributing to your HSA. However, once you enroll in any part of Medicare, you will no longer be eligible to contribute to your HSA without being subject to tax penalties. Even enrolling in Part A alone will disqualify you from depositing to your HSA.
What if I am covered under my spouse’s HSA at work?
The IRS rule affects only employees who have HSAs through their employment. The rule does not affect covered spouses, who can continue to use funds from the working spouse’s HSA for approved medical purposes.
What are the consequences of contributing funds to my HSA while enrolled in Medicare? Medicare beneficiaries who continue to contribute funds to an HSA may face IRS penalties, including paying back taxes on their tax-free contributions and account interest, excise taxes, and additional income taxes.
What if my employer is still contributing to my HSA, and I am ready to enroll in Medicare?
Ask your employer to stop making contributions to your HSA up to 6 months before applying for Medicare Part A only, Part B, or starting your Social Security retirement benefits. When you receive Social Security retirement benefits, your Part A coverage will initiate automatically and is back-dated six months (but no earlier than the first month you’re eligible for Medicare) to give you six months of back-dated benefits. If you contribute to your HSA during those six months, you may face a 6% excise tax and an income tax for those contributions.
This “6-month lookback” starts when you enroll in Medicare or begin your Social Security retirement benefits. However, you can withdraw those contributions by the end of the tax year to avoid the excise tax.
Have more questions?
If you have more questions about Medicare and HSAs or have general questions about Medicare, please visit us at medicarechoicegroup.com or speak with one of our licensed Medicare advisors at 855-482-0574.
Resources:
https://www.healthline.com/health/medicare/hsa-and-medicare#medicare-penalties
https://offices.depaul.edu/human-resources/benefits/Documents/HSA-medicare-faqs.pdf
https://www.fidelity.com/learning-center/personal-finance/hsas-and-medicare
https://www.optum.com/content/dam/optum/consumer-activation/unknown/HSA_and_Medicare.pdf
