The HSA-Medicare Collision: Why Enrolling at 65 Can Make Contributions Tricky
A health savings account (HSA) can be a great resource for saving money on taxes while giving yourself a financial cushion 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 have already put into your HSA, but it will affect your ability to make new contributions.
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Why Medicare enrollment changes HSA eligibility
Enrolling in Medicare typically means you can no longer contribute to an HSA. An HSA is designed for someone who has an HSA-eligible high-deductible health plan, and Medicare doesn’t fulfill that requirement.
You don’t have to liquidate and withdraw any of the holdings in your HSA, and you can continue to make tax-free withdrawals if they are for qualified medical expenses. Many Medicare-related costs count as eligible expenses. Notably, the IRS says that Medigap premiums are not qualified expenses for tax-free HSA withdrawals.
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The timing trap: Medicare Part A can be retroactive
Your 65th birthday isn’t the only date to keep in mind when assessing how Medicare can impact your HSA. People who enroll in premium-free Part A after 65 may have coverage start up to six months before they sign up or apply for Social Security benefits. This retroactive coverage never starts earlier than the month you turn 65, but it’s an important detail for HSA contributions.
Medicare.gov suggests that people stop contributing to their HSA plans six months before retiring or applying for benefits to avoid a tax penalty. It’s known as the six-month look-back.
What readers should do before and after turning 65
If you are still working, it’s a good idea to get in touch with HR or your benefits administrators before you turn 65. That way, you will know how to handle HSA contributions and avoid the tax trap that comes with Medicare’s six-month look-back. You should also tell your employer to stop HSA contributions leading up to your enrollment.
Any worker who is receiving Social Security while employed should check if they are already enrolled in Medicare. The government automatically enrolls you in Medicare Part A and Part B if you are receiving Social Security benefits and are 65 years old. In that scenario, you will receive your Medicare card in the mail about three months before you turn 65.
Anyone who is receiving Medicare should immediately stop HSA contributions, but they do not have to make withdrawals right away. 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 isn’t.
If you can still contribute to an HSA, it’s often a good idea to capitalize on it, since HSAs come with a triple-tax advantage. The IRS updated limits to $4,400 per year if it’s just you or $8,750 per year for family coverage. Those amounts go up to $4,500 and $9,000 in 2027, respectively.