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What you must know about health savings accounts before you retire

What you must know about health savings accounts before you retire

June 06, 2023

"Many Americans are opting to work past age 65. What will that mean for their health savings accounts?"- Jerry Yu

By Jerry Yu

Turning 65 is a significant event for most Americans. For many, age 65 marks the beginning of retirement or transitioning out of self-employment. There are also numerous changes to their health insurance and health savings accounts.

If you've recently signed up for Medicare or are eligible, you may wonder how Medicare impacts your tax-advantaged health savings account. Many Americans with high-deductible health insurance from their employers take advantage of health savings accounts.

HSA accounts allow you to set aside money on a pre-tax basis you can use to pay for specific qualified medical expenses.

Using an HSA to pay for co-pays, co-insurance, deductibles, and other healthcare expenses reduces overall healthcare costs.

While many people can and do continue to contribute to HSAs after they've turned 65, everything changes once they become eligible for Medicare. The rules surrounding Medicare and health savings accounts for those turning 65 are complicated. Continuing to fund your health savings account to gain tax advantages when eligible for Medicare can create issues and unpleasant surprises.

It gets even trickier because Medicare backdates coverage when you enroll in Part A. If you have an HSA and continue working past 65, you cannot contribute to that HSA once you've enrolled in Medicare. You also can no longer accept an employer's contribution to the HSA.

Since the lookback period is six months, you will need to be careful to stop all HSA contributions six months before you either enroll in Medicare or begin getting Social Security benefits. If you forget to stop your contributions or don't withdraw any contributions made within the six-month window before the end of the contribution year, you could face expensive penalties.

It's critical to remember that once you've reached your "full retirement age" and claimed Social Security, you're automatically enrolled in Medicare Part A. Of course, that means you can no longer make HSA contributions even though you didn't actively apply for Medicare.

HSAs and turning 65 in a nutshell

Here are some key considerations regarding health and retirement.

  • Your HSA contributions, including any provided by your employer, are disallowed when you have other medical coverage, including Medicare Part A.
  • You can still enroll in HSA-eligible plans and use any cash in your HSA for qualified expenses. Still, you are not allowed to make additional contributions once you have enrolled in Medicare.
  • In some circumstances, you may want to participate in your employer's HSA-eligible plan after enrolling in Medicare. You might do this because it's the only health insurance plan available at your workplace or the premiums are lower. However, you cannot contribute more money to an HSA or accept money from your company without penalty.
  • Remember, there is a six-month lookback period when enrolling in Medicare after turning 65.
  • Many financial advisors say the best practice is for workers to stop putting money into their HSA six months before the month they apply for Medicare to help avoid penalties.
  • The month of application is used to calculate the six-month lookback and not the month you want your benefits to start.
  • You can use funds already in an HSA to pay your qualified medical expenses when you enroll in Medicare, including to reimburse yourself for Medicare premiums.
  • You cannot use HSA funds to pay for premiums for Medicare supplemental insurance.
  • If you are already receiving Social Security payments when you reach 65, you are automatically enrolled in Medicare and can no longer contribute to a health savings account.
  • If you've reached full retirement age and have enrolled in Social Security, you are automatically enrolled in Medicare Part A and can no longer contribute to an HSA account.
  • If you are considering deferring Medicare past age 65, you must be enrolled in an employer-based group health plan. Private insurance, COBRA, or coverage purchased on a health care exchange don't count. If you have one of those plans instead of your employer's group plan, you must stop contributions to the HSA when you turn 65 and enroll in Medicare. Otherwise, you could face lifetime late-enrollment penalties.
  • Once you turn 65 and don't have coverage under your employer's plan, you have eight months to enroll in Medicare Part B. If you miss the deadline you will incur a lifetime penalty. If you aren't diligent during the Medicare Special Enrollment Period, you may have gaps in your health insurance along with expensive penalties. You will also be unable to enroll until the January 1-March 31 window. Also, your coverage will not start until July 1st.


Every year, seniors who can't afford to lose a cent of their retirement savings encounter unexpected penalties for not following strict health savings account rules.

If you are planning to work past age 65 and enjoy the tax benefits of an HSA, you must be very careful to follow the rules and not make excess contributions. Meet with an advisor who specializes in Medicare and HSAs and gain clarity on Medicare's numerous rules. These rules can be tricky, so it's wise to seek direction from a financial advisor who understands them and can help you avoid the many pitfalls.