HSAs and Medicare: What You Need to Know

Summary: Understanding how Medicare affects your HSA can help you avoid tax penalties and make the most of your savings. This guide explains when to stop contributions, how Medicare enrollment impacts your HSA, and how to use your funds in retirement.

Healthcare costs can become more complicated as you approach retirement and start planning for Medicare.

When you have a Health Savings Account (HSA), it’s key to understand how enrolling in Medicare affects your ability to contribute to your HSA and how you can continue using the funds you’ve already saved.

What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a personal savings account you can open if you’re covered by a High-Deductible Health Plan (HDHP). Contributions go in pre-tax, can grow tax-free if invested and the withdrawals for qualified medical expenses are tax-free.  

Once you enroll in any part of Medicare, you can no longer contribute new funds to your HSA. The money already in your HSA remains yours, never expires and can still be used to pay for qualified medical expenses throughout retirement. After age 65, you can also use the funds in your HSA for any other expenses but will need to pay taxes on these withdrawals.

Overview of Medicare

Medicare is the federal health insurance program available to most people starting at age 65, or earlier if you qualify due to disability or certain medical conditions. Medicare includes several parts, and each interacts with your HSA in similar ways.

Enrollment in any part of Medicare, including Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage), Part D (prescription drug coverage) or a Medicare Medical Savings Account (MSA) plan, makes you ineligible to contribute new funds to your HSA under IRS rules. However, once enrolled, you can still use your existing HSA balance tax-free for most qualified medical expenses across all parts of Medicare. 

This includes using your HSA funds to pay for premiums for Parts A, B, C and D, as well as copayments, deductibles, coinsurance and other eligible healthcare costs.¹

HSA contributions and Medicare: Key HSA rules after 65

Important rules apply to HSA contributions after Medicare enrollment:

Once you enroll in Medicare, any new contributions to your HSA, whether made by you or your employer, are considered excess contributions and may be subject to IRS penalties. This includes catch-up contributions, which allow people age 55 and older to contribute an additional $1,000 per year. If you remain employed after age 65 and your employer continues making HSA contributions after your Medicare enrollment, those contributions also count as excess.

If you mistakenly contribute after enrolling in Medicare, the IRS allows you to correct excess contributions by withdrawing both the excess amount and any earnings before your tax filing deadline.² Correcting excess contributions promptly can help you avoid a 6% excise tax penalty and prevent additional penalties from accumulating in future years.

The Medicare and HSA 6-month rule

Medicare’s retroactive enrollment rule for Part A is one of the most common ways people unintentionally make excess HSA contributions after age 65.

When you enroll in Medicare Part A after turning 65, your coverage is automatically applied retroactively for up to six months, but never earlier than your 65th birthday.³ This retroactive coverage can create an unexpected issue if you’ve continued contributing to your HSA during that retroactive period.

Under IRS rules, any HSA contributions made for months when you were retroactively covered by Medicare are considered excess contributions. These excess contributions are subject to the 6% excise tax penalty for each year they remain in your account, including any earnings, until they are corrected and withdrawn.

To avoid accidentally contributing during a retroactive Medicare period and face a tax penalty, it’s recommended you stop HSA contributions at least six months before you retire or apply for Social Security benefits.⁴ This allows you to avoid contributing for any months that might later be covered retroactively by Medicare.

Using HSA funds after Medicare enrollment

While enrolling in Medicare makes you ineligible to contribute new funds to your HSA, the money you’ve already accumulated in your account remains yours and can help cover your healthcare costs throughout retirement.

You can continue to withdraw funds tax-free from your HSA to pay for many eligible healthcare expenses, including:

• Medicare premiums for Parts A, B, C (Medicare Advantage) and D (prescription drug plans)
• COBRA premiums and long-term care insurance premiums, subject to IRS annual limits
• Medicare deductibles, copayments, coinsurance and other out-of-pocket costs
• Qualified healthcare services not covered by Medicare, such as dental care, vision care, hearing aids and certain over-the-counter medications

Medicare supplement insurance premiums are not considered a qualifying medical expense. If you’re 65 or older and want to use HSA funds to cover these premiums, you’ll need to pay taxes on your withdrawals. 

If you’re looking for a Medicare plan that works similarly to an HSA, it’s worth understanding MSA plans. These plans combine a high deductible Medicare Advantage plan with a medical savings account you can use to pay for healthcare expenses. However, unlike an HSA, the funds deposited into your MSA comes from Medicare — not you or your employer — and you’re responsible for managing those funds until you meet the plan’s deductible.⁵ Medicare deposits the money once per year.

Strategies for maximizing HSA benefits before Medicare

Planning ahead helps you avoid surprises when HSA contributions must stop after enrolling in Medicare. By funding your HSA while you’re still eligible, you can build valuable savings to help cover healthcare costs in retirement.

The following strategies can help maximize your HSA before Medicare enrollment:

• Maximize contributions while eligible: Fully fund annual contributions, including the additional catch-up contribution available for individuals age 55 and older.
• Allow savings to grow: Keep funds invested to potentially grow tax-free for future qualified healthcare expenses.
• Plan Medicare enrollment carefully: Stop HSA contributions six to eight months before Medicare enrollment to avoid excess contributions caused by retroactive Medicare Part A coverage.
• Evaluate whether delaying Medicare enrollment makes sense: In certain situations, delaying Medicare enrollment allows continued HSA contributions if qualified employer-based group health coverage remains active.

Can you delay Medicare to keep contributing?

In certain situations, delaying Medicare enrollment allows you to keep contributing to an HSA longer, potentially building more tax-free savings for future medical expenses. However, this option comes with important rules and potential risks that require careful consideration.

There are several key factors to keep in mind:

• Employer coverage must remain in place: You must maintain creditable employer group health coverage to qualify for a Special Enrollment Period (SEP) when you eventually enroll in Medicare. Remember, to contribute to an HSA, your group health coverage must be a HDHP.
• Late penalties may apply: Once you’re creditable employer health coverage ends, failing to enroll on time during your SEP can result in permanent late enrollment penalties: 10% for each full year delayed for Medicare Part B, and 1% for each month delayed for Medicare Part D.
• Potential coverage gaps: Employer coverage may end unexpectedly or become unaffordable before Medicare enrollment begins.
• Personal circumstances: Review your employment situation, healthcare needs, and financial goals carefully before deciding to delay Medicare enrollment.

Final thoughts on HSAs and Medicare

An HSA can remain a helpful resource both before and after you enroll in Medicare.

Here’s a quick recap to help guide your HSA and Medicare planning:

• Before Medicare: Contribute as much as possible while you’re still eligible to build tax-free savings for future medical expenses.
• Approaching Medicare: Carefully time your last contributions to avoid excess contributions caused by Medicare’s retroactive enrollment rules.
• After Medicare: Use your saved funds tax-free to pay for qualified healthcare costs, including Medicare premiums, deductibles, copayments and many other out-of-pocket expenses.

Because healthcare needs often change during retirement, it’s important to regularly review your HSA and Medicare strategy, especially as you approach key enrollment dates or experience a major life change. Mutual of Omaha’s Medicare Advice Center can help you evaluate your options with a personalized plan recommendation based on just a few simple questions.

FAQs related to HSAs and Medicare

Q1. Can you have a health savings account with Medicare?

Yes. You can keep and use an existing HSA after enrolling in Medicare, but you can’t contribute new funds to it. Any contributions made after your Medicare enrollment date are considered excess contributions and may result in IRS tax penalties.

Q2. When should I stop contributing to HSA before Medicare?

To avoid IRS penalties, it’s best to stop contributing to your HSA six months before you apply for Medicare. That’s because Medicare Part A coverage can begin up to six months retroactively, which could make any contributions during that period excess contributions. Stopping early helps you avoid unexpected tax penalties.

Q3. What is the penalty for HSA contributions while on Medicare?

If you keep contributing to your HSA after enrolling in Medicare, those contributions are considered excess and may be subject to a 6% IRS penalty for each year they stay in your account. You can avoid the penalty by withdrawing the extra amount—and any earnings—before the tax filing deadline.

Q4. What is the maximum HSA contribution per year?

For 2025, HSA contribution limits are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution allowed for those age 55 or older. Once you enroll in any part of Medicare, you can no longer contribute new funds to your HSA. You may face IRS penalties if you continue to do so.⁶

Q5. What happens to my HSA when I turn 65?

After you turn 65, you can continue to use your HSA to pay for qualified medical expenses without paying taxes. If you use the money for something other than medical costs, you won’t face a penalty like younger account holders would, but you will owe regular income tax on the amount withdrawn from your account.⁶

Q6. What happens to my HSA when I die?

If your spouse is the named beneficiary, the HSA simply becomes theirs and keeps its tax-advantaged status. If someone else inherits it, including your estate, the HSA ends but the account’s fair market value becomes a lump sum taxable payout to the beneficiary. The taxable income is reduced if funds are used to pay for your qualified medical expenses within one year of your death.

Q7. Can I use HSA funds to pay for Medicare premiums?

Yes. You can use your HSA funds tax-free to pay premiums for Medicare Parts A, B, C (Medicare Advantage), and D (prescription drug coverage), as well as COBRA premiums and long-term care insurance premiums (subject to IRS limits). However, you can’t use your HSA tax-free to pay for Medicare supplement insurance premiums as these are not considered a qualified medical expense.

Q8. What other expenses can I use my HSA funds to pay for after I’ve enrolled in Medicare?

You can use your HSA to pay for many qualified healthcare expenses, including deductibles, copayments, coinsurance, dental care, vision care, hearing aids, durable medical equipment and certain over-the-counter medications. Once you turn 65, you can spend your HSA funds on whatever you choose without penalty. However, if the expense is not a qualified medical expense, it will be taxed as regular income.

Q9. How does retroactive Medicare coverage affect my HSA?

Medicare Part A can be retroactive for up to six months. If you make HSA contributions during any months when your Medicare coverage is applied retroactively, those contributions are considered excess and may be subject to IRS penalties. To avoid this, it’s usually best to stop contributing to your HSA six to eight months before you enroll in Medicare.

Sources

¹ Medicare.gov. Web page: Pay Part A & Part B premiums. Retrieved June 12, 2025, from www.medicare.gov/basics/costs/pay-premiums. 

² IRS.gov. Instructions for Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (2023). Retrieved June 12, 2025, from www.irs.gov/instructions/i5329. 

³ Medicare.gov. Web page: When does Medicare coverage start? Retrieved June 12, 2025, from www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start. 

⁴  Medicare.gov. Web page: Working past 65. Retrieved June 12, 2025, from www.medicare.gov/basics/get-started-with-medicare/medicare-basics/working-past-65. 

⁵  Medicare.gov. Web page: Medicare Medical Savings Account (MSA) plans. Retrieved June 12, 2025, from www.medicare.gov/health-drug-plans/health-plans/your-coverage-options/MSA.

⁶ IRS.gov. Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans (2023). Retrieved June 12, 2025, from www.irs.gov/publications/p969.

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