Wondering how your Health Savings Account will change once you become eligible for Medicare? Read on to learn more.
Money in a Health Savings Account, or HSA, can be used for current medical costs or can be saved to apply toward future health needs. Balances carry over year to year, and you can contribute to the account on a tax-free basis.
Special rules apply to those who contribute to an HSA as they near 65, when they’ll become eligible for Medicare coverage.
Current rules dictate that once you are enrolled in Medicare, you can no longer make new contributions to an HSA. That’s because you must be part of a high deductible health plan (HDHP) to put money into an HSA.
If you wish to continue contributing to an HSA past your 65th birthday, you can consider delaying Medicare coverage. The catch is you must also delay receiving Social Security payments, as applying for Social Security automatically enrolls you in Medicare Part A. Delaying Medicare coverage is not an option for those who work for a small employer with under 20 employees, but can be an attractive option for those who work for a larger employer.
Once you decide to stop contributing to the HSA, you would enroll in Medicare Part A and get six months of retroactive coverage””and those who delay receiving Medicare must stop contributions to an HSA six months before collecting Social Security.
After you are on Medicare, while you’re unable to contribute to an HSA you can still use the money that has accumulated in your account to help pay for medical expenses such as deductibles, premiums, copays or coinsurance. Also, HSA funds can be used to pay for Medicare premiums. Money used for qualified medical expenses can continue to be withdrawn tax-free.
There’s another benefit to aging, as well. Starting at age 65, you can take penalty-free withdrawals from your HSA for any reason, which means you can also use the money for ineligible, non medical expenses without having to pay the 20% penalty those under 65 must pay (though you’ll have to pay taxes to use it).