Health Savings Plans (HSAs) are a great, tax-advantaged savings tool. Your HSA contributions and expenses for qualified medical expenses are both tax free. HSAs are commonly used to pay for deductibles, coinsurance, and copayments. 

There are two important things you need to know when it comes to HSAs and Medicare:

  1. You cannot contribute to an HSA while you’re on Medicare, which is important to know when you first apply for Medicare

  2. You can use your HSA to pay for Medicare expenses, including the Part B premium

In this guide, we’ll explain how to avoid penalties caused by contributing to an HSA while on Medicare, what you can use your HSA for while on Medicare, and more details on how HSAs and Medicare work together.

Are you planning to enroll in Medicare and are currently contributing to an HSA?

Health savings accounts are a great way to pay for a portion of your healthcare costs. HSAs have a triple tax advantage:

  1. Your contributions reduce your taxable income.

  2. Any investment growth within the account is tax free.

  3. Withdrawals for “qualified medical expenses” are tax free (we explain these more in the next section)

But here’s an important point: Don’t start Medicare if you’re contributing to an HSA.

If you intend to continue contributing to a Health Savings Account, then you should not start any part of Medicare, because you will face a tax penalty. You must discontinue contributions six months before you apply to enroll in Part A. I’ve italicized the word apply because you can apply to enroll in Medicare up to three months before you want it to begin. If that’s the case, then you must discontinue your HSA contributions up to nine months in advance.

The application date is the key factor here, not when you start receiving Medicare.

For example, if you want your Medicare Part B to begin on January 1, 2024, and you notify Social Security in October, then you must discontinue making HSA contributions by March 31 because your Part A will be dated to April 1 even though your Medicare Part B will not start until January 1.

I’ve included a cheat sheet for Medicare enrollment from my book, It’s Not That Complicated below that can help you understand when to enroll in Medicare based on your specific situation, including your HSA contribution status.

Do you want to know what Medicare expenses you can use your HSA for?

HSA withdrawals for “qualified medical expenses” are tax free. So, what are qualified medical expenses under Medicare? Almost everything, including:

  • Part B, Part C (Advantage) and Part D premiums

  • Deductibles

  • Copayments

  • Coinsurance associated with any part of Original Medicare or Medicare Advantage

The only thing you can’t use it to pay for is your Medicare Supplement (Medigap) premium.

If you have questions about when you should stop your HSA contributions, when you should enroll in Medicare, or how you can use your HSA to pay for Medicare-related expenses, we’re here to help! 

Schedule a free consultation or call us at (855) 900-2427 to get your questions answered and feel confident in your Medicare decisions.

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