Health Savings Accounts (HSA) after Medicare Enrollment

If you’ve been steadily contributing to a Health Savings Account (HSA), you know how powerful it can be for managing healthcare costs.

When the time comes to join Medicare, available three months before, three months after, and during your 65th birthday month, the rules change, and it’s important to know what you can and cannot do with your hard-earned HSA savings:

THe Key Rule

Once you enroll in any part of Medicare, you are no longer eligible to contribute to an HSA.

This rule applies even if you still have a high-deductible health plan (HDHP). The good news: You can continue to use your existing HSA funds (pre-enrollment) for qualified medical expenses tax-free.

What You Can Do:

  • Use HSA funds to pay Medicare premiums, including Parts B, D, and Medicare Advantage plans.
  • Cover out-of-pocket healthcare costs like copays, deductibles, and prescriptions.
  • Withdraw funds for non-medical expenses after age 65. Although those withdrawals will be taxed as income, they will not face the 20% penalty that applies to younger account holders.

Planning TiPS

If you are approaching age 65 but have not yet enrolled in Medicare, you may want to max out your HSA contributions before you sign up. Medicare coverage begins one month before your 65th birthday if you decide to enroll, so it is wise to stop HSA contributions at least one month before coverage begins to avoid tax penalties.

Remember:
  • If you are already taking Social Security, you will automatically be enrolled in Medicare Part A and B.
  • If you want to enroll in Medicare, you will need to during the seven-month period around your birth date to avoid penalties.

Is It a Good Idea?

Yes: HSAs can help offset healthcare costs tax-free throughout retirement. Consider a strategy about when you enroll in Medicare and when you make your last contributions to your HSA.

It’s important to understand how Medicare and HSAs fit together to potentially aid in a smooth retirement transition. We can help you consider the options. Please call us with any questions or to discuss your specific plans!

Disclosures

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Shepherd Financial, LLC and LPL Financial are not endorsed by or affiliated with the U.S. Centers for Medicare and Medicaid Services or any government agency.

Investment advice offered through Shepherd Financial Partners, LLC. A registered investment advisor. Registration as an investment advisor does not imply any level of skill or training. 

Securities offered through LPL Financial, member FINRA/SIPC. Shepherd Financial Partners and LPL Financial are separate entities.

Additional information, including management fees and expenses, is provided on Shepherd Financial Partners, LLC’s Form ADV Part 2, which is available by request. 

The content is developed from sources believed to be providing accurate information. 

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