Can You Have a Health Savings Account (HSA) and a Medicare Plan?
Key takeaways:
You can contribute to a health savings account (HSA) if you have a qualified high-deductible health plan and are not covered by another health plan like Medicare.
Medicare beneficiaries are not allowed to contribute to an HSA. But they can withdraw funds to pay for eligible expenses, such as Medicare copays and deductibles.
Before you enroll in Medicare, learn about how HSA contributions and distributions work. This will help you avoid unexpected taxes and penalties.
Table of contents
Having a health savings account (HSA) has become a popular way to gain valuable tax benefits and save money on qualified out-of-pocket medical expenses. But this account is available only to individuals enrolled in a high-deductible health plan (HDHP). Once you enroll in a disqualifying health insurance plan — including Medicare — you cannot contribute to an HSA.
Medicare beneficiaries should understand how HSAs work to avoid future penalties and unexpected taxes. In general, you are not able to make HSA contributions when you enroll in Medicare. But you don’t have to give up all your HSA benefits. Below, we break down what you can and cannot do with your HSA when you enroll in Medicare.
Does Medicare affect your HSA eligibility?
Yes. You cannot contribute to your HSA after enrolling in Medicare.
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But you can still withdraw money from your HSA anytime — the money is yours to keep. Your HSA dollars can be used to pay for qualified medical expenses 100% tax free, as long as they aren’t reimbursed by insurance or any other source.
After you turn 65, you can use your HSA funds to pay for nonqualified expenses, and you won’t have to pay a penalty. If you want to use your HSA to pay off debt or fund a vacation, you have the flexibility to do that. You’ll just be on the hook for income taxes on the money used.
How do HSA contributions work when you’re enrolled in Medicare?
HSA contributions don’t work the same as withdrawals when you enroll in Medicare. As soon as you enroll in any part of Medicare, you have to stop making contributions to your HSA.
Only individuals enrolled in HDHPs that meet specific requirements can contribute to an HSA. All other health plans, including Medicare, are not compatible with an HSA.
Before you enroll in Medicare, consider how it will affect your HSA contributions and distributions, especially if you are married. If both spouses are HSA eligible, not enrolled in Medicare, and age 55 or older, each spouse can make a $1,000 catch-up contribution on top of the standard contribution limit.
For 2025, the total HSA contribution limit for family coverage is $10,550. This includes the standard family contribution limit of $8,550 plus $1,000 in catch-up contributions for each spouse. Each spouse must contribute their catch-up amount to their own HSA.
Use your health savings account (HSA) during retirement: If you don’t use all the money in your HSA to pay for medical expenses now, you can use the funds during retirement.
Medicare coverage. Medicare doesn’t cover certain healthcare services, such as most dental care and vision care. But you can use your HSA to pay for them.
Looking for ways to spend your HSA dollars? From hearing aids to over-the-counter medications, here are some ways to spend your HSA funds.
It’s also important to note that these rules apply only if both spouses meet the eligibility criteria for HSA contributions. If one spouse is enrolled in Medicare or otherwise ineligible, the contribution limits and rules may differ.
What is the penalty for making HSA contributions while enrolled in Medicare?
If you add more money to your HSA after you enroll in Medicare, you could face penalties. You typically pay a 6% excise tax on money you contribute, or what’s known as excess contributions. This tax applies each year the excess contributions sit in your account.
The IRS won’t penalize you if you still have money in your HSA when you enroll in Medicare. You can use your HSA dollars to pay for qualified medical expenses. Unlike the money in a flexible spending account, all the unused funds in your HSA will continue to roll over every year.
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HSA and Medicare 6-month rule
If you fail to stop making HSA contributions at least 6 months before your Medicare enrollment, you may have to pay a tax penalty.
Let’s say you apply for Medicare Part A (hospital insurance) after you turn 65. Your Medicare coverage — and your HSA ineligibility — will apply retroactively for up to 6 months. So you may have to pay a 6% excise tax on any money you contributed to your HSA during that period.
You can delay your Medicare enrollment if you want to continue making contributions to your HSA. As long as you keep your group health plan as your primary insurance, you won’t have to pay a late enrollment penalty for original Medicare (Parts A and B).
When to stop contributing to an HSA before Medicare enrollment
Once you’re enrolled in Medicare, your HSA contribution limit drops to zero starting the first month of your Medicare coverage. This rule also applies to any retroactive Medicare coverage. If you delayed signing up for Medicare and your enrollment is backdated, HSA contributions made during that retroactive period are considered excess contributions.
Let’s say you turned 65 in July 2024 and enrolled in Medicare. Before enrolling, you had an HDHP with self-only coverage and were eligible to make catch-up contributions to your HSA. You would have been able to contribute $5,150, which includes the standard contribution limit and the catch-up amount. But once your Medicare coverage begins, any HSA contributions made after that date are considered excess contributions.
To avoid penalties, stop contributing to your HSA before your Medicare coverage begins. In the above example, if your Medicare coverage began in July, you would be able to contribute only $2,575 (half the annual limit) to avoid excess contributions. When you turn 64, planning for this can help you manage your contributions and avoid penalties as you transition to Medicare.
How do HSA distributions work when you’re enrolled in Medicare?
When you turn 65, you will have more flexibility over how you use the funds in your HSA. You’ll have to pay income tax if you withdraw to pay for nonqualified expenses. Before age 65, you may also owe a 20% tax penalty for nonqualified expenses.
Are my HSA withdrawals tax free?
One of the benefits of an HSA is that your withdrawals are tax free if you use the funds to pay for qualified medical expenses. Nonqualified expenses are subject to federal and state income taxes.
This table can help you determine if your HSA withdrawal will be tax free.
Withdrawal for | How much you’ll pay in taxes |
|---|---|
Qualified medical expense (under age 65) | $0 |
Qualified medical expense (ages 65 and older) | $0 |
Nonqualified medical expense (under age 65) | Ordinary income-tax rate, plus a penalty |
Nonqualified medical expense (ages 65 and older) | Ordinary income-tax rate |
Review the list of IRS-approved qualified medical expenses, and keep all receipts to ensure your expenses qualify for tax-free treatment. Also, check with your HSA administrator to ensure you are following the latest rules.
What are qualified expenses that you can use your HSA funds for?
Be sure to know which expenses are considered HSA eligible under IRS rules. The IRS includes a list of HSA-eligible medical and dental expenses in Publication 502.
Some common expenses you can pay for tax free with HSA funds are:
Adult diapers
Artificial limb
Medical-alert bracelets
Occupational therapy
Oxygen equipment
Wheelchair
X-rays
Your HSA won’t cover all medical expenses tax free. Cosmetic procedures, like Botox, aren’t HSA-eligible expenses. Also, Medicare supplemental insurance (also known as Medigap) cannot be paid for with HSA dollars. You’ll have to pay income tax on money you withdraw to pay for these items.
Can you pay Medicare premiums with an HSA?
Health insurance costs are typically not considered a qualified medical expense under an HSA. But if you’re over 65 and enrolled in Medicare, you may be able to pay your premiums with your HSA funds.
Medicare costs that are considered qualified medical expenses include:
Medicare Part A premiums (hospital insurance)
Medicare Part B premiums (medical insurance)
Medicare Part D premiums (prescription medication coverage)
If you need long-term care, Medicare most likely won’t cover your costs unless you meet certain requirements. But that’s another time that your HSA could come in handy. Your HSA dollars can be used for eligible long-term-care premiums. The amount of long-term-care premiums that count as qualified medical expenses will depend on your age.
The bottom line
Enrolling in Medicare can affect your ability to make contributions to a health savings account (HSA). Before you sign up for Medicare, make sure you understand HSA rules to avoid unexpected taxes and penalties. Although Medicare beneficiaries cannot contribute to an HSA, they can still withdraw money from their account. Money that is used to pay for qualified medical expenses, such as Medicare Parts B and D premiums, will not be subject to taxes.
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References
Internal Revenue Service. (n.d.). Health savings accounts and other tax-favored health plans. U.S. Department of the Treasury.
Internal Revenue Service. (2024). Publication 502 (2024), medical and dental expenses. U.S. Department of the Treasury.
Internal Revenue Service. (2024). Publication 969 (2023), health savings accounts and other tax-favored health plans. U.S. Department of the Treasury.
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
