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:
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.
Health savings accounts are a great way to pay for a portion of your healthcare costs. HSAs have a triple tax advantage:
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.
HSA withdrawals for “qualified medical expenses” are tax free. So, what are qualified medical expenses under Medicare? Almost everything, including:
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!