HSA And Medicare - Contributions And Tax Penalties After 65

If you have a health savings account (HSA), you’ll need to make some adjustments when you turn 65 years old. Find out how to contribute and avoid tax penalties once you’re enrolled in Medicare.
Agnus Smith
Published on
September 20, 2018
Updated on
January 22, 2024

Your Medicare eligibility comes with a lot of decisions and considerations. It can be confusing to sort through all the options available to you and decide on a course of action that fits your budget and healthcare needs. There is Original Medicare coverage, Medigap plans to supplement those Original Medicare costs, and Medicare Advantage plans that replace Original Medicare and provide additional benefits. You may also be curious about the relationship between the health savings accounts (HSA)your employer may offer and your Medicare coverage. It is important to understand how an HSA and Medicare work.

What Is A Health Savings Account (HSA)?

A health savings account is a bank account or financial account, that is used for health-related spending. Many of these accounts come with their own dedicated credit or debit card you can use to make healthy purchases. These HSA accounts come with a variety of limitations on what is considered acceptable health spending.

One of the great benefits of these plans is that the money is contributed to an HSA on a tax-free basis. It should also be pointed out that an HSA is not the same thing as a Medicare Medical Savings Account. That is a different type of medical savings account that falls outside the guidelines for an HSA.

Can You Contribute To Your HSA After You Turn 65?

This is where things get tricky. You can contribute to an HSA after turning 65, but if you have enrolled in Medicare, then you can no longer contribute the money on a tax-free basis. The key is that you have already enrolled in Medicare. If you turn 65 and delay Medicare enrollment because you have employer insurance then you can continue your HSA contributions and it will not affect Medicare because you are not enrolled.

This all gets tricky with Medicare Part A and HSA accounts. You are automatically enrolled in Part A when you begin receiving your Social Security benefits. If you have not enrolled in Social Security or Medicare, you can keep contributing to an HSA on a tax-free basis. If you’ve already signed up for Medicare Part A and HSA contributions but are not yet enrolled in Social Security, you can simply withdraw your Part A application.

If, however, you’ve already received Social Security payments, you would have to return all those payments and dis-enroll first from Medicare Part A and HSA contributions can continue tax-free.

HSA And Medicare Eligible Expenses

HSA contributions and Medicare work much as an HSA works with other health insurance plans. You can use the funds to pay for eligible health expenses not covered by Medicare, such as eyeglasses and hearing aids. HSA spending often includes prescription copays, over the counter medicines, and other items in your local pharmacy, though you will need to check with your HSA administrator for all the rules.

Can You Pay Medicare Premiums With Your HSA?

Your HSA contributions and Medicare premiums can be linked. That is to say, your Medicare Part B premium can be paid out of any funds you have accrued in an HSA account. This is a great way to prepare for and meet these premium costs.

You can also use your HSA funds to pay your Medicare deductible. While the annual deductible for Medicare is fairly small, the HSA is a great way to meet this cost. Medicare will not pay for any health services until your Medicare deductible has been met each year.

Tax Penalty For HSA Contributions And Medicare

This is where enrolling in Medicare and contributing to an HCA becomes problematic. You will pay taxes on any funds you contribute to an HSA once you have Medicare. You will want to avoid this, so you can explore options to leave your Medicare coverage if you still have employer-sponsored insurance, or you can stop contributing to your HSA. The penalty will generally be charged at tax times when your HSA spending is accounted for.

Explore Your HSA Options With FirstQuote Medicare

If you’re looking for more information about a health savings account, your best bet is to talk to an experienced agent, and FirstQuote Medicare can help. Find agents in your area by entering your zip code. If you already know what you want, then you can skip talking to an agent and compare Medicare quotes in your area and get covered today.

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