Fair Square Medicare Wordmark

Health Savings Accounts (HSAs) and Medicare

Cover image
By Daniel Petkevich
Jan 24, 2024

Medicare Enrollment May Affect Your HSA Contribution

You've been diligently saving money in your HSA, knowing that it will come in handy for unexpected medical expenses in the future. But as you approach your 65th birthday, you face a tough decision.

Stay Up to Date on Medicare!

Join the Fair Square Medicare Newsletter to stay informed on cost savings, changes to Medicare, and other valuable healthcare information.
Should you enroll in Medicare or keep your current health plan?
Will your Medicare enrollment affect your ability to contribute to HSA and use those funds?
There may be a lot of questions on your mind when it comes to HSAs, and you may be looking for answers.

What's an HSA?

HSAs or Health Savings Accounts are specialized savings accounts designed for individuals with high-deductible health plans (HDHP).
A high-deductible health plan is a type of health insurance plan that typically has lower premiums but higher deductibles compared to traditional insurance plans. They are commonly offered as group health insurance plans by large companies.
In 2024, any health plan having a deductible of at least $1,600 for an individual or $3,200 for a family is considered an HDHP. Additionally, annual out-of-pocket expense maximums (deductibles, co-payments and other amounts, but not premiums) cannot exceed $8,050 for single coverage or $16,100 for family coverage.
If you're enrolled in an HDHP plan, you might be eligible for an HSA. The money you contribute to an HSA is tax-deductible, and any earnings on the account are tax-free.
In addition, withdrawals from the HSA that are used to pay for qualified medical expenses are tax-free. You can let your employer manage your HSA, or you can set up an individual HSA through a bank, credit union, or insurance company.
Note that HSAs have contribution limits set by the IRS each year, and any money you don't use in a given year can be rolled over to the following year. The HSA contribution limit for 2024 is $4,150 for individuals and $8,300 for families.

Can I Continue to Contribute to My HSA After Enrolling In Medicare?

No. Once you enroll in any part of Medicare, you can no longer make tax-deferred HSA contributions. This includes both

Medicare Part A

and Part B.
You may be subject to tax penalties if you contribute to an HSA while enrolled in Medicare.
But, if you choose to delay Medicare enrollment because you’re still working and want to continue contributing to your HSA, you must also wait to collect Social Security retirement benefits. This is because most individuals collecting Social Security benefits when they become eligible for Medicare are automatically enrolled in Medicare Part A.
You cannot decline Part A while collecting Social Security benefits. So, you should delay receiving Social Security benefits if you wish to continue contributing funds to your HSA.
However, suppose you've enrolled in Medicare Part A or are receiving Social Security benefits while contributing to your HSA. In that case, it’s important to stop contributing to your HSA immediately to avoid any tax penalties.
Alternatively, you can also choose to rescind your Social Security election (within 12 months), but you’ll need to pay back all benefits received to date.

Why Can't I have an HSA with Medicare?

According to the IRS, to qualify for HSA contributions, you must meet the following requirements:
  • You must be covered under a high-deductible health plan (HDHP) on the first day of the month.
  • You cannot have any other health coverage except as permitted under the rules for

    other health coverage.

  • You cannot be enrolled in Medicare.
  • You must not be claimed as a dependent on someone else's tax return.

When Do I Need to Stop Contributing to My HSA?

Knowing when to stop contributing to your HSA is essential to prevent possible tax penalties, and this depends on when you plan to enroll in Medicare. Here are two scenarios:
  • If you plan to enroll in Medicare when you turn 65 or during your Initial Enrollment Period, you must stop making HSA contributions the month before your Medicare effective date.
  • If you plan to delay Medicare, you must stop making HSA contributions at least six months before your Medicare effective date. This is because enrolling in Medicare Part A comes with up to six months of retroactive coverage — but not beyond your initial month of eligibility. You may incur a tax penalty if you do not stop HSA contributions at least six months before Medicare enrollment.

Why Is There a 6-Month Lookback Period for HSA Contributions?

In 1983, the Department of Health and Human Services implemented a policy to provide retroactive Medicare coverage for up to six months for individuals transitioning from employer health coverage to Medicare. Prior to this policy, individuals making this transition faced a coverage gap quite often, which could result in delayed or inadequate medical care.

I Already Made Contributions That Aren’t Allowed. How Do I Fix It?

If you failed to stop your HSA contributions at least six months before enrolling in Medicare, you'll need to contact your HSA administrator and ask them to reverse your excess contributions to avoid tax penalties.
Ensure you act quickly and make the necessary changes before filing income

taxes

for the year you made those contributions. Otherwise, you'll have to file an amended return.
Additionally, if you have already received Form W-2 from your employer that shows HSA contributions, you'll need to request an amended W-2 form from them to reflect the changes.

What Is the Penalty for HSA Contributions Made After I Start Medicare?

If you make excess contributions to your HSA and do not correct them by the end of the tax year, the IRS may charge an excise tax penalty of 6% on the excess amount for each year it remains in the account.
To understand how this may affect your specific tax situation, we recommend consulting with a qualified tax advisor.

Can I Use HSA Funds After I Enroll in Medicare?

Yes. Upon enrolling in Medicare, any funds already in your HSA can be used to pay for

qualified medical expenses

, such as deductibles, copays, and premiums for

Medicare Part B

, Part D, and

Medicare Advantage

. Additionally, if you continue to use the account for qualified medical expenses, the funds will remain tax-free.
However, it's important to note that HSA funds cannot be used to pay for Medicare supplement insurance premiums (

Medigap

) as they are not considered qualified medical expenses under IRS rules.

What if I Choose to Stay on My Non-Credible HDHP at Work?

Some individuals may opt to participate in an HSA-eligible plan after enrolling in Medicare, typically because it's the only plan available at their workplace or because of its lower premiums.
If you choose to keep your HDHP plan at work, you can do so, but you cannot contribute further to your HSA. Additionally, you may face penalties if you accept your employer's contributions to your HSA.

FAQs About HSA Eligibility and Regulations Relating to Spouses

If you're in a relationship, you may have some questions about your HSA account. Here are some of the frequently asked questions related to HSAs.
1. Can My Spouse Open an HSA if We Are Enrolled in My Employer's HSA-Qualified Plan and I Enroll in Medicare?
Yes. If you have family HDHP coverage and your spouse is eligible for an HSA, they can open their HSA account, and both of you can make tax-deductible contributions — up to the family maximum — even if only your spouse is HSA-eligible. This provision allows couples to contribute to an HSA and build tax-free income balances for several years after the older spouse enrolls in Medicare.
2. Can I Contribute to My Spouse’s HSA if I’m Enrolled in Medicare and Am No Longer HSA-Eligible?
Yes. If your spouse is HSA-eligible and has an HSA, you or anyone else can contribute to their account, regardless of your enrollment in Medicare.
3. My Spouse and I Both Have an HSA. Do We Have to Limit HSA Distributions to Our Expenses?
No. There is no reimbursement limit for your HSA funds. As long as you remain married, you can use your HSA to reimburse expenses incurred by your spouse and vice versa. However, you cannot combine your HSA accounts.
Alternatively, to simplify your finances, you may choose to reimburse both your and your spouse's expenses from one HSA to exhaust the balance in that account. This allows you to manage only one account and avoid monthly administration/maintenance fees while retaining the ability to reimburse any expenses either of you incurs.
4. Will My HSA Reimburse My Spouse's Qualified Medical Expenses if I Pass Away First?
When enrolling in your HSA, you can name a beneficiary, which can be changed anytime.
If you name your spouse as the beneficiary, they will receive the HSA with balances and tax advantages intact after your death. They can then reimburse their own eligible expenses tax-free.
However, if you name anyone else as the beneficiary, the HSA will be liquidated and the assets will pass to that person or entity. They may incur a tax liability and will not enjoy the same tax benefits or constraints as an HSA.

Weigh Your Options Carefully

Deciding between enrolling in Medicare or maintaining your Health Savings Account (HSA) can be a tough call. On the one hand, HSAs offer a valuable source of additional income and tax savings. But on the other hand, Medicare offers extensive coverage that can be crucial in later life.
If you're covered by an HDHP and are still working after 65, delaying your Medicare enrollment can be a smart decision. However, if your HDHP doesn't cover prescription drugs, you might have to pay the late penalty fee when you later enroll in a Part D drug plan.
Deciding whether to enroll in Medicare or delay enrollment can be challenging and may require careful consideration based on your individual circumstances. If you're unsure about the best option,

our advisors

are here to help. Give us a call at 1-888-376-2028 to discuss your options and get personalized advice.

Stay Up to Date on Medicare!

Join the Fair Square Medicare Newsletter to stay informed on cost savings, changes to Medicare, and other valuable healthcare information.

Recommended Articles

Medigap plan letters on outstretched fingers stock image
How Do Medigap Premiums Vary?
Apr 12, 2023
Abortion stock image
Does Medicare Cover Abortion Services?
Dec 13, 2022
Cover image
Can I Use Medicare Part D at Any Pharmacy?
Aug 28, 2023
Male doctor with his arms crossed stock image
Can Doctors Choose Not to Accept Medicare?
Dec 8, 2022
Leg bones and knees, 3d rendering. stock photo
Does Medicare Cover Tymlos?
Dec 5, 2022
Medicare cost stock image
How Much Does Medicare Cost?
Jul 25, 2022
Cover image
The Fair Square Bulletin: October 2023
Oct 2, 2023
Union Station in Denver stock image
15 Best Ways for Seniors to Stay Active in Denver
Mar 9, 2023
Sinusitis. stock illustration
Is Balloon Sinuplasty Covered by Medicare?
Dec 1, 2022
Medicare Part A & Part B stock photo
How Much Does Medicare Part A Cost in 2023?
Nov 18, 2022
senior man on a phone call stock image
What is a Medicare Beneficiary Ombudsman?
Apr 11, 2023
Cover image
Should You Work With A Remote Medicare Agent?
Sep 20, 2023
Cover image
Does Medicare Cover Physicals & Blood Work?
Feb 1, 2024
stair lift stock photo
Does Medicare Cover Stair Lifts?
Nov 18, 2022
Medicare Explained Thumbnail
Medicare Explained
Jan 3, 2022
Enroll in Social Security step-by-step with the help of Fair Square stock image
How to Enroll in Social Security
Apr 28, 2023
A cartoon signpost with HMO and PPO pointing in opposite directions
What's the Difference Between HMO and PPO Plans?
Dec 1, 2022
Diagnosis overactive bladder stock image
Does Medicare Cover PTNS?
Dec 9, 2022

More of our articles

14 Best Ways for Seniors to Stay Active in Washington, D.C.

2023 Medicare Annual Election Period (AEP)

2024 "Donut Hole" Updates

2024 Cost of Living Adjustment

Can I Change Medicare Advantage Plans Any Time? | Medicare Plans

Can I Change My Primary Care Provider with an Advantage Plan?

Can I Choose Marketplace Coverage Instead of Medicare?

Can I switch From Medicare Advantage to Medigap?

Do Medicare Supplement Plans Cover Dental and Vision?

Do You Need Medigap if You're Eligible for Both Medicare and Medicaid?

Does Medicare Cover Bladder Sling Surgery?

Does Medicare Cover Boniva?

Does Medicare Cover Breast Implant Removal?

Does Medicare Cover Cataract Surgery?

Does Medicare Cover Compounded Medications?

Does Medicare Cover Diabetic Eye Exams?

Does Medicare Cover Driving Evaluations?

Does Medicare Cover Exercise Physiology?

Does Medicare Cover Flu Shots?

Does Medicare Cover Hepatitis C Treatment?

Does Medicare Cover Hoarding Cleanup?

Does Medicare cover Hyoscyamine?

Does Medicare Cover Ilumya?

Does Medicare Cover Incontinence Supplies?

Does Medicare Cover Iovera Treatment?

Does Medicare Cover Kidney Stone Removal?

Does Medicare Cover Light Therapy for Psoriasis?

Does Medicare Cover Lipoma Removal?

Does Medicare Cover Macular Degeneration?

Does Medicare Cover Mental Health?

Does Medicare Cover Orthodontic Care?

Does Medicare Cover Penile Implant Surgery?

Does Medicare Cover SI Joint Fusion?

Does Medicare Cover SIBO Testing?

Does Medicare Cover TENS Units?

Does Medicare Cover Wart Removal?

Does Medicare Pay for Antivenom?

Does Medicare Pay for Bunion Surgery?

Does Medicare pay for Opdivo?

Does Medicare Pay for Varicose Vein Treatment?

Does Medicare Require a Referral for Audiology Exams?

Does Your Plan Include A Free Gym Membership?

Fair Square Bulletin: We're Revolutionizing Medicare

Finding the Best Dental Plans for Seniors

How Do I Sign up for Medicare? A Simple How-To Guide For You

How Medicare Costs Can Pile Up

How Much Does a Medicare Coach Cost?

How Much Does a Pacemaker Cost with Medicare?

How Much Does Medicare Part B Cost in 2023?

How Much Does Open Heart Surgery Cost with Medicare?

How Much Does Rexulti Cost with Medicare?

How to Apply for Medicare?

How to Deduct Medicare Expenses from Your Taxes

How Your Employer Insurance and Medicare Work Together

Is Displacement Affecting Your Medicare Coverage?

Medicare Advantage Plans for Disabled People Under 65

Medicare Deductibles Resetting in 2024

Medicare Savings Programs in Kansas

The Easiest Call You'll Ever Make

The Fair Square Bulletin: August 2023

The Fair Square Bulletin: February 2024

The Fair Square Bulletin: July 2023

The Fair Square Bulletin: The End of the COVID Emergency Declaration

Top 10 Physical Therapy Clinics in San Diego

Welcome to Fair Square's First Newsletter

What Are Medicare Part B Excess Charges?

What Does Medicare Cover for Stroke Patients?

What Is a Medicare Advantage POS Plan?

What's the Deal with Flex Cards?

When to Choose Medicare Advantage over Medicare Supplement

Why Is Medicare So Confusing?

Will Medicare Cover it?

Your Medicare One-Stop-Shop

Your guide to Medicare Parts A & B, Medicare Advantage, and Medigap. 100% free.
Get the Fair Square Bulletin

Medicare savings tips, helpful guides, and more.

About

Medicare 101

Current Clients

Medicare Supplement Plans

Medicare Advantage Plans

Fair Square 2023

Terms of Use
Notice of Privacy Practices

Virgil Insurance Agency, LLC (DBA Fair Square Medicare) and www.fairsquaremedicare.com are privately owned and operated by Help Button Inc. Medicare supplement insurance plans are not connected with or endorsed by the U.S. government or the federal Medicare program. This is a solicitation of insurance. A licensed agent/producer may contact you. Medicare Supplement insurance is available to those age 65 and older enrolled in Medicare Parts A and B and, in some states, to those under age 65 eligible for Medicare due to disability or End-Stage Renal disease. Virgil Insurance Agency is a licensed and certified representative of Medicare Advantage HMO, HMO SNP, PPO, PPO SNP and PFFS organizations and stand-alone PDP prescription drug plans. Each of the organizations we represent has a Medicare contract. Enrollment in any plan depends on contract renewal. The plans we represent do not discriminate on the basis of race, color, national origin, age, disability, or sex. Plan availability varies by region and state. For a complete list of available plans please contact 1-800-MEDICARE (TTY users should call 1-877-486-2048), 24 hours a day/7 days a week or consult www.medicare.gov. © 2022 Help Button Inc

We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.

MULTIPLAN_FairSquareMedicare_01062022_M