5 Questions on How Medicare Affects Your HSA Eligibility

January 22, 2020

As Health Savings Account (HSA) participation continues to increase, a growing number of HSA participants age 65 and older will become eligible for Medicare. And those HSA-eligible Americans who reach 65 years of age will have to choose between whether to enroll in Medicare or keep contributing tax-free dollars to their HSAs. We’ve compiled five common questions you might have if you’re a Medicare-eligible employee who is participating or has participated in an HSA.

Can I contribute to an HSA while on Medicare?

No. Once you enroll in Medicare, you are no longer eligible to contribute to an HSA.

Can I withdraw HSA funds while on Medicare?

Yes. HSAs are employee-owned accounts, so your account always stays with you. That means you’re still eligible to withdraw your HSA funds, even after you’ve enrolled in Medicare.

Does my ability to spend HSA funds change at age 65?

Yes. You gain even more flexibility in your ability to spend HSA funds. Prior to age 65, you face a 20 percent penalty on HSA funds used to pay for non-eligible expenses. However, once you turn 65, you can spend your HSA funds on any expense without penalty (although you’ll still have to pay taxes on expenses that aren’t HSA-eligible). 

Can I pay for my Medicare premiums with my HSA funds?

Yes. You are able to spend any existing HSA funds to pay for Medicare monthly premiums, such as those premiums for Part B and Part D plans (most people do not have premiums for Medicare Part A). Note: You could use your HSA funds to pay for a Medicare supplemental policies, but because they are not HSA-eligible expenses you would have to pay taxes on it.

Is there a penalty for delaying Medicare enrollment so I can continue contributing to an HSA?

While Medicare eligibility begins at age 65, you’re able to enroll in Medicare during a seven-month window that starts three months before the month of your 65th birthday and ends at the end of the third month after your birthday. Should you choose not to enroll in a Medicare plan with premiums when first eligible, you are subject to a penalty that increases the cost of your Medicare premiums by up to 10 percent for each year you were eligible but did not sign up. Note: This penalty applies to Medicare plans that have premiums; if you’re like most people and will be on premium-free Medicare Part A, then your Medicare Part A will not face this premium. Consult a tax adviser if you have questions.

Would you like to learn more about how an HSA can help you plan for retirement? Click below to download your free Securing Your Retirement handout.

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