Yes, but you can’t contribute to a health savings account (HSA) after you enroll in Medicare.
You can use money you’ve already accumulated tax-free in the account for eligible medical expenses at any time. After you turn 65, you can even withdraw money tax-free from an HSA to pay your Medicare premiums.
An HSA is a tax-advantaged way to save for out-of-pocket medical expenses. Your contributions are tax-deductible. Or, if you’re participating through your employer, the contributions are deducted before your income tax withholding is calculated.
The money grows tax-deferred in the account. And you can withdraw it tax-free for eligible health care expenses in any year.
In 2022, you can contribute to an HSA if you haven’t enrolled in Medicare and you have an HSA-eligible health insurance policy with a deductible of at least $1,400 for yourself only or $2,800 for family coverage. That’s true whether you get the insurance through your employer or on your own.
When should I stop contributing to my HSA?
You can contribute to an HSA for as long as you want if you haven’t enrolled in Medicare and have an HSA-eligible insurance policy. However, after you sign up for Medicare, you can’t make new contributions. And if you’re on Medicare, your employer can’t add to your HSA either.
You must stop contributing to an HSA starting the first month that you are enrolled in Medicare Part A or Part B, even if you also have a high-deductible policy through work. If you enroll in Medicare midyear, you may be able to make prorated contributions based on the number of months you had an eligible health insurance policy before your Medicare took effect.
For example, if your Medicare coverage started July 1, you can make half the year’s contribution to the HSA. If you’re 55 or older in 2022, the full year’s contribution is $4,650 for single coverage or $8,300 for family coverage. In this case, you can contribute up to $2,325 for the year if you had single coverage or $4,150 for family coverage. You have until the tax-filing deadline of April 15, 2023, to contribute for 2022.
What expenses are tax free after I’m on Medicare?
At any age you can withdraw HSA money tax-free to pay your health insurance deductibles, copayments, dental care, hearing care, prescription and over-the-counter drugs, vision needs and other qualified health care expenses that insurance doesn’t cover.
You can also withdraw money tax-free from an HSA to pay a portion of eligible long-term care insurance premiums based on your age. You can withdraw up to $4,510 for long-term care premiums in 2022 if you’re age 61 to 70 and $5,640 if you’re older than 70. Your spouse can withdraw up to that amount, too, based on his or her age. The eligible withdrawal limits for long-term care premiums are smaller at younger ages.
After you turn 65, you can also withdraw money tax-free from your HSA to pay premiums for Medicare Part B, Part D prescription drug coverage and Medicare Advantage plans, but not Medicare supplemental plans, also called Medigap. You also can pay your Part A premiums with HSA money if you or your spouse did not work long enough to be eligible for premium-free Part A coverage.
If you have your premiums paid directly from your Social Security benefits, you can withdraw money tax-free from your HSA to reimburse yourself for those expenses. Just remember to keep records of the costs.
Before age 65, if you use HSA money for nonmedical expenses, you’ll have to pay taxes and a 20 percent penalty on the withdrawals. The penalty disappears at age 65, but you’ll still have to pay taxes on withdrawals that aren’t for eligible medical expenses. So to avoid the tax bill, look for qualified expenses, such as Medicare premiums, when taking withdrawals to avoid the tax bill.
Keep in mind
You may have a deadline later. Some people who are still working at 65 for an employer with 20 or more employees choose to delay signing up for Medicare Part A and Part B, so they can continue to contribute to an HSA. But when you leave that job, you’ll need to sign up for Medicare within eight months of losing health insurance or you’ll have to pay late enrollment penalties when you sign up for Part B.
If you work for a small employer, with fewer than 20 employees, you usually have to enroll in Medicare at age 65 because Medicare generally becomes the primary coverage and the employer coverage is secondary. If you don’t enroll in Medicare then, you could have big coverage gaps.
Already receiving Social Security? If you’re getting Social Security benefits, you’re automatically enrolled in Part A and you don’t have the option to delay.
Another caveat: If you enroll in Part A after the month you turn 65, your Part A coverage can begin up to six months retroactively but no earlier than your birthday month. Keep this retroactive coverage date in mind when calculating how much you can contribute to the HSA for the first year.
In the example above, if you enroll July 1 in Medicare and your Part A coverage takes effect Jan. 1, you can’t make any HSA contributions for the year.