Medicare and Health Savings Accounts: Here’s What You Need to Know

Many employers offer employees a Health Savings Account (HSA) as part of their health benefits. HSAs are financial accounts made available to employees, so they may contribute funds without paying any taxes on them. All funds that are put into an HSA must be used for qualified medical expenses. If the funds are used for any other purpose, the money will be taxed.

Medicare and HSA Contributions

If you currently have an HSA through your employer, it’s important to know that you may no longer contribute to your HSA account when you are ready to switch to a Medicare Part A and/or Part B plan. This is a law and does not vary from plan to plan.

We will note this later in the blog, but if you decide to work past age 65 and delay your Medicare coverage, this contribution rule applies at that point, as well. You must stop contributing to your HSA six months before you sign up for Medicare Part A or you will be subject to a tax penalty.

Medicare and HSA Withdrawals

If you started the year with an HSA and still have a balance in your account by the time you enroll in Medicare, you may continue to make withdrawals on your account to pay for qualified medical expenses. The money you take out will not be taxed as long as you are using it for approved expenses, such as deductibles, premiums, copays and coinsurance. You can work with your employer to pro-rate the amount of money you contribute to your HSA during a calendar year if you know you will be enrolling in Medicare during that year.

HSAs and Delayed Medicare Enrollment

Working past 65 may mean that you decide to defer your Medicare enrollment. Depending on your personal situation, you may consider delaying Medicare enrollment if you are 65 years old (or older) and work for an employer with 20 or more employees, or you are under age 65 and work for an employer with more than 100 employees.

Medicare Enrollment Form

It’s possible that one person’s given situation could mean that contributing to an HSA with pre-tax dollars is the right fit for their health care needs, while for another individual, it may mean that enrolling in Medicare at age 65 is the right choice.

To learn more about using Medicare as a secondary form of coverage, click here. You can also consult with a RetireMEDiQ advisor about what makes the most sense for your specific situation.

HSAs and Delaying Social Security

If you decide to defer your enrollment in Medicare when you are first eligible and continue with your employer-provided health insurance, it is important to know that this decision impacts your ability to collect Social Security benefits. You must stop all contributions to your HSA six months before you sign up for Medicare Part A. This is because Medicare Part A provides six months of retroactive coverage from the time you apply for Social Security benefits, assuming you were eligible for Medicare during those past six months. Any contributions you make to your HSA will likely be subjected to a penalty because you are not able to contribute to an HSA if you are enrolled in Medicare, even retroactively.

Working with a trusted advisor, like a member of our team, is highly recommended if you have an HSA account through your employer and want to understand your options leading up to your Medicare Initial Enrollment Period. Proper advanced planning can save you time, stress and money while ensuring you meet the appropriate deadlines without incurring fees or penalties.

Call us at 1-866-600-5638 to get in touch with our team of experts for answers to any specific questions you have about your Health Savings Account and Medicare! We look forward to helping you!

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