Medicare and an HSA: One Question You Shouldn’t Overlook
Updated: Sep 25
If you’re approaching Medicare eligibility, one of the first questions you should ask yourself is:
Are you or your employer currently contributing to a Health Savings Account?
It may seem like a small detail, but it can have important tax consequences.
Medicare changes your HSA contribution eligibility
Once you’re enrolled in any part of Medicare—including premium-free Part A—you can no longer contribute to an HSA. Contributions made by your employer count, too.
This doesn’t mean you lose the money already in your account. You can continue using existing HSA funds for qualified medical expenses after enrolling in Medicare. The restriction applies to making new contributions.
Why Medicare Part A can create a surprise
For someone who enrolls in Medicare after age 65, premium-free Part A coverage may be retroactive for as many as six months, but not earlier than the first month the person was eligible for Medicare.
That means someone could make HSA contributions and later discover that Medicare coverage was backdated over some of those same months. The IRS may consider contributions made during the retroactive Medicare coverage period to be excess contributions.
As a general precaution, Medicare advises people who enroll after age 65 to stop HSA contributions at least six months before applying for Medicare or Social Security benefits. The timing can be different for someone enrolling when first eligible at 65. Medicare’s working-past-65 guidance explains the general rule.
Don’t forget about Social Security
Applying for Social Security benefits can also trigger enrollment in Medicare Part A. Someone who has delayed Medicare while continuing to work and contribute to an HSA should investigate the Medicare effective date before applying for Social Security.
Stop and ask before enrolling
If you have an HSA, don’t automatically enroll in Medicare Part A simply because it may not have a monthly premium. First, determine:
When you expect to enroll in Medicare.
Whether you or your employer is still contributing to your HSA.
Whether your Part A coverage could be retroactive.
When those contributions should stop.
Because HSAs involve tax rules, it’s wise to confirm your timing with your employer, tax adviser, or financial adviser. The IRS explains Medicare enrollment and HSA contribution eligibility in Publication 969.
At BeneCentric, we’ll make sure the HSA question isn’t overlooked as you prepare for Medicare. We can help you understand the Medicare considerations and coordinate your enrollment planning with the guidance you receive from your employer or financial professional. Contact us today.
