Can You Have an HSA with Medicare Part A?

Health Savings Accounts (HSAs) allow individuals enrolled in high-deductible health plans (HDHPs) to set aside pre-tax dollars to pay for qualified medical expenses. Many people contribute to HSAs in order to save money for health care costs in retirement. However, your eligibility to contribute to an HSA changes once you enroll in Medicare. This article explains how enrolling in Medicare Part A affects your ability to contribute to an HSA.

What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged savings account designed specifically for health care expenses. To be eligible to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) and have no other health coverage.

Here are some key features of HSAs:

  • You contribute pre-tax or tax-deductible dollars to the account.
  • Contributions can be made by you, your employer, or both.
  • The money grows tax-free.
  • Funds can be withdrawn tax-free to pay for qualified medical expenses.
  • You own the account and keep it even if you change health plans or employers.

HSAs help you pay for health expenses before you meet your deductible and also provide savings for future health care costs in retirement. Many people use them as a supplement to Medicare in retirement.

How Does Medicare Affect HSA Eligibility?

In order to contribute to an HSA, you must be enrolled in a high-deductible health plan and have no other health coverage. This means you cannot be enrolled in Medicare and contribute to an HSA.

According to IRS rules, you are no longer allowed to contribute to an HSA once you are enrolled in any part of Medicare, including:

  • Medicare Part A (hospital insurance)
  • Medicare Part B (medical insurance)
  • Medicare Part C (Medicare Advantage plans)
  • Medicare Part D (prescription drug coverage)

This loss of HSA eligibility occurs even if you only enroll in Medicare Part A.

Why Does Enrolling in Part A Affect HSA Eligibility?

Medicare Part A covers hospital services including inpatient care, skilled nursing facility care, hospice, and some home health services.

Most people age 65 and older can enroll in Part A premium-free since they or their spouse paid Medicare payroll taxes for at least 10 years. People under 65 can get Part A if they have a disability or end-stage renal disease.

Part A is considered health coverage by the IRS. Since you cannot have any other health coverage besides an HDHP to contribute to an HSA, enrolling in Part A makes you ineligible to continue contributing to your HSA.

This loss of eligibility happens even though there is no premium for Part A for most people.

When Should I Stop Contributing to My HSA?

To avoid tax penalties, you must stop contributing to your HSA at least 6 months before you apply for Medicare.

Here’s why:

  • Your initial enrollment period for Medicare begins 3 months before your 65th birthday month and ends 3 months after your birthday month.

  • If you apply for Medicare up to 3 months after turning 65, your Part A coverage can be backdated up to 6 months.

  • The retroactive Part A coverage would overlap with HSA contributions, causing tax issues.

Stopping contributions 6 months before applying avoids this problem.

For example:

  • Your 65th birthday is July 1, 2023.
  • You apply for Medicare in your birthday month, July 2023.
  • Your Part A coverage is backdated to January 1, 2023.
  • If you had contributed to your HSA in January-June 2023, it would overlap with the retroactive Part A coverage.
  • By stopping HSA contributions in January 2023, 6 months before applying, you avoid this tax issue.

What Happens When You Enroll in Medicare Part A?

Here’s what happens when you enroll in Part A:

  • You can no longer contribute to your HSA. No more pre-tax or tax-deductible contributions are allowed after you enroll in Part A.

  • Your HSA custodian will change your contributions to $0. The account overseer will stop your HSA contributions upon Medicare enrollment to comply with IRS rules.

  • You can use your HSA to pay for medical expenses. Even after enrollment in Medicare, you can still use your HSA funds tax-free for Medicare deductibles, premiums, copays and other qualified medical expenses.

  • Your HSA funds roll over year to year. Money in your HSA does not expire. It stays in the account year after year until you need it.

  • You can invest your HSA funds. Once your account balance reaches a certain threshold, you can invest HSA funds for increased tax-free growth potential.

Should I Delay Medicare to Keep Contributing to My HSA?

For some people who are still working and on an employer’s health plan at age 65, it may make sense to delay Medicare enrollment in order to continue contributing to an HSA.

Whether you should do this depends on your employer size and current health coverage:

  • Employers with under 20 employees: Enroll in Medicare at 65 to avoid gaps in coverage. These small group health plans always pay secondary to Medicare.

  • Employers with 20+ employees: You can delay Medicare enrollment and keep contributing to your HSA if allowed by your employer. Their plans pay primary to Medicare.

Either way, keep in mind:

  • You can enroll in Medicare Part B without penalty whenever you stop working or lose coverage.
  • Make sure to stop HSA contributions 6 months before applying for Medicare to avoid tax issues.
  • Weigh the tax savings of an HSA with the potential benefits of Medicare coverage.

Consult with your employer’s benefits administrator before making any decisions.

Frequently Asked Questions

Here are some common questions about HSAs and Medicare enrollment:

Can I keep my HSA after enrolling in Medicare?

Yes, you can keep your HSA account after you enroll in Medicare. You just can no longer contribute to it.

What if my employer deposits money in my HSA after I’m on Medicare?

Inform your employer to stop HSA contributions once you enroll in Medicare to prevent tax penalties. Do not withdraw employer HSA deposits made in error. Have your employer retrieve mistaken deposits.

What if I’m on my spouse’s HDHP and HSA?

If your spouse has an HSA from their employer plan, they can continue contributing even after you enroll in Medicare. Eligibility is determined individually.

Can I use my HSA for Medicare expenses?

Yes! You can use your HSA tax-free for Medicare Part A and Part B premiums, deductibles, copays, and coinsurance. HSAs are a great way to offset Medicare costs.

Where can I get more help with HSAs and Medicare?

Consult a tax advisor or financial planner for guidance on how to optimize your HSA with Medicare enrollment. Medicare also has counselors available to help answer questions.

The Bottom Line

You cannot contribute to an HSA once you enroll in any part of Medicare, including Part A. To avoid tax penalties, you should stop contributing to your HSA at least 6 months before applying for Medicare.

While you must stop contributing at enrollment, you can still use your HSA tax-free to pay Medicare expenses in retirement. Careful planning allows you to maximize your HSA and make the most of this savings tool with Medicare.

The Complete HSA and Medicare Guide


What is the penalty for having an HSA while on Medicare?

There’s no penalty for having an already established HSA when you’re enrolled in Medicare, although you can no longer set up a new HSA. However, if you save to an HSA while you’re enrolled in Medicare, you may be hit with IRS penalties on what are considered “excess contributions,” including a 6% excise tax charge.

Do I have to stop HSA contributions 6 months before Medicare?

Since you will be older than 65 when applying for Medicare, you will need to stop HSA contributions 6 months before applying. Behind the scenes, Medicare Part A has a 6-month retroactive start date. And therefore, contributions to an HSA become ineligible six months before filing the application.

What disqualifies you from contributing to an HSA?

You can’t contribute to an HSA if you have Medicare coverage, or a plan that pays its share of a covered service without you having to pay deductibles or copayments first (called “first dollar coverage”).

Is there a penalty for HSA at 65?

At age 65, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free the distribution must be for a qualified medical expense. Withdrawals made for other purposes will be subject to ordinary income taxes.

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