When should I stop my Health Savings Account (HSA) contributions?
Typically, if you have a high-deductible health plan (HDHP), your benefits include a Health Savings Account (HSA). If you plan to enroll in Medicare, there are specific guidelines for when to stop HSA deposits.
If you apply for Medicare before your 65th birthday month, you can contribute to your HSA through the day before your Medicare effective date. If you choose to delay Medicare coverage, you should stop depositing funds into your HSA on the first of the month in which you turned age 65 or up to six months prior to signing up for Medicare (whichever period is shorter) to avoid penalties.
Whether you are considering Medicare now or in the near future, you don’t have to spend countless hours researching plans or figuring out how HSAs and Medicare work on your own.
Medicare Coverage and Your Health Savings Account
A health savings account (HSA) is a financial account made available to employees so they may contribute funds without paying any taxes on them. All funds that are put into an HSA must be used for qualified medical expenses. If the funds are used for any other purpose, the money will be taxed and penalized.
If you apply for Medicare prior to your 65th birthday month, you will be able to contribute to your HSA with your employer until the day before your Medicare effective date. If you wait to sign up for Medicare until after you turn 65, when you eventually enroll, Medicare Part A includes up to six months of retroactive coverage. In other words, Medicare Part A will cover your applicable past health services once your coverage goes into effect.
For example, if you qualify for Medicare in April but wait to apply until October of the same year, Medicare will assist with covered health expenses dating back to April. But because you are retroactively “enrolled” in Medicare for an extra six months, you could be penalized after the fact if you contribute to your HSA during those months. It’s important to note that your annual HSA contribution limit will be prorated by the number of months you are eligible to contribute, which is the number of months you do not have Medicare Part A or Part B during that calendar year. To avoid paying penalties, you must ensure your contributions fall within the prorated annual contribution limit. The specific date to stop your HSA contributions will depend on when you apply for Medicare.
Once you apply for Medicare, you can no longer receive new HSA deposits from your employer. However, you can use your existing HSA funds to pay for Medicare costs even after you enroll. As long as you withdraw from your account to cover qualified medical expenses, your money is not taxed. This applies to deductibles, copays, coinsurance, and Part B or prescription drug plan premiums.
If You’re Retiring and Enrolling in Medicare
First, it's important to remember that retirement is NOT a requirement for Medicare. On your employer group coverage, both you and your employer can contribute funds to your HSA. You do not pay taxes on HSA deposits. The federal government sets annual limits for HSA deposits. You can withdraw money from this account tax-free, so long as it is used for covered medical expenses.
Keep a close eye on your HSA deposits, especially the nearer you are to your retirement. Both you and your employer must take action regarding your HSA. Make a clear plan with your employer about when exactly you plan to retire and get off employer health coverage. Not only will this smoothen your transition to Medicare—it will also help you avoid potential penalties.
When you enroll in Medicare, you can use your existing HSA funds to pay for health care services. While you can’t deposit new funds, you can access all the money in your HSA tax-free if you use it for approved expenses.
If You’re Still Working When You Enroll in Medicare
You can sign up for Medicare without retiring from your job. If you are still working and eligible for Medicare, you can forgo your employer's health coverage. Your employment status does not impact your Medicare eligibility, and vice versa. Learn more about working past age 65 and Medicare.
Once you enroll in Medicare—even if you are still working—the guidelines for contributions to your HSA remain the same. If you apply for Medicare prior to your 65th birthday month, you can contribute to your HSA up until the day before your Medicare effective date. If you apply after that time, you should plan to stop depositing funds to your HSA up to six months before enrolling in Medicare because you could be penalized if you continue to contribute.
Decide when you plan to retire and when you plan to sign up for Medicare; those may not be the same date. If you plan to enroll in Medicare within the calendar year of your retirement, you can prorate your HSA deposits to avoid exceeding the limit and receive the maximum value. Your employer must also stop contributing HSA funds once you sign up for Medicare, regardless of how long you plan to continue working. If you’ve already contributed to your HSA while enrolled in Medicare, our advisors can explain the steps you should take to get back on track.
Medicare and Health Savings Accounts: Q&A
What if my spouse enrolls in Medicare?
The spouse enrolled in Medicare becomes ineligible to contribute to an HSA. However, the non-Medicare spouse can continue contributing to their own HSA. You can still use existing HSA funds from either spouse’s account to pay for qualified expenses for both spouses.
At what point should I stop contributing to my HSA?
It depends on when you apply for Medicare. If you apply for Medicare before your 65th birthday month, you can contribute to your HSA through the day prior to your Medicare effective date. If you choose to delay Medicare coverage, you should stop depositing funds into your HSA up to six months before enrolling in Medicare to avoid penalties.
Do I have to stop HSA contributions six months before Social Security?
It's important to know that if you are not currently enrolled in Medicare Parts A or B, signing up for Social Security will automatically enroll you in Medicare Part A, and delaying Medicare is not an option at that point.
You must stop all contributions to your HSA up to six months before you sign up for (or are automatically enrolled in) Medicare Part A or up to the first of the month you turned age 65 (whichever is shorter) since Part A provides up to six months of retroactive coverage beginning when you apply for Social Security benefits. If you contribute to your HSA outside of the permitted time, you may be subject to penalties. We recommend speaking with one of our advisors about the specifics of your situation to ensure you adhere to all the guidelines. We’re here to help!
Do I have to stop contributing to my HSA six months before Medicare?
If you apply for Medicare prior to your 65th birthday month, you can contribute to your HSA up until the day before your Medicare effective date. If you apply after that time, you should plan to stop depositing funds to your HSA up to six months prior to signing up for Medicare or up to the first of the month in which you turned age 65 (whichever period is shorter) because you could face penalties if you continue to contribute.
Can I still contribute to my HSA after age 65?
You may continue to contribute to an HSA past age 65, so long as you are enrolled in a qualified high-deductible health plan, which excludes Medicare. Once you apply for Medicare, you gain retroactive coverage of up to six months, so it’s important to speak with an advisor about your situation to determine when you should stop contributing to your HSA.
What is the cutoff date for HSA contributions?
The date you will need to “close” your HSA (stop contributing funds) will depend on when you enroll in Medicare. If you apply for Medicare before your 65th birthday month, the day before your Medicare effective date is the last day you are permitted to contribute to your HSA. If you delay Medicare and choose to apply after that time, you must stop your HSA contributions up to six months before you enroll in Medicare.
Questions about your Health Savings Account?
If you’d like clarification on how to handle your health savings account as you approach Medicare enrollment, our local advisors are standing by to help.
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