Medicare and HSAs can work together. Start saving now.

Are you getting close to the age when you might retire? It's natural to think about how you'll be able to pay for your health care as you get older. And a health savings account (HSA) can be a big help.

An HSA is a type of personal savings account that allows you to save and pay for qualified medical expenses, tax-free. It’s important to note that HSAs differ from flexible spending accounts (FSAs).

To learn more about the differences, see “FSA, HSA & HRA: What's the difference?”

Some people think that once you have Medicare, you can't have an HSA. But that's not true.

So how can your HSA and Medicare work together? You can still use your HSA to pay for Medicare expenses such as premiums and deductibles, you just can’t contribute to your HSA once you’ve enrolled in Medicare.

Using an existing HSA account to pay for Medicare expenses can be a smart financial strategy. You need to understand the rules and limitations regarding your HSA account and Medicare. But with a little planning, you can still make the most of your HSA funds during retirement.

Here are some of the most frequently asked questions about how an HSA and Medicare can work together:

1. When do I stop contributing to my HSA if I have Medicare?

Once you enroll in Medicare, you can no longer contribute to your HSA account. So, it's a good idea to contribute as much as you can to your HSA before enrolling to take advantage of any tax benefits.

You should stop contributing to your HSA if you’re no longer eligible since you’re enrolled in Medicare. Otherwise, you could be subject to certain tax penalties.

2. How can I use an existing HSA to pay for Medicare?

The good news is if you have an existing HSA account, you can use those funds to pay for certain Medicare-related expenses. These expenses could include Medicare premiums, deductibles, copays and coinsurance.

Not sure about what any of these terms mean? Then see our article about common Medicare terms.

However, it’s important to note, as with any federal program, the rules for what you can pay for with your HSA are subject to change. So, before you use your HSA to cover expenses associated with your Medicare coverage, confirm that current rules allow it. Also keep in mind that you cannot use your HSA funds to pay for Medicare Supplement (Medigap) policy premiums without paying taxes.

Most HSA providers will allow you to pay for Medicare expenses directly from your HSA account, or you can reimburse yourself for Medicare expenses that you have already paid out of pocket. That’s why it’s important to keep accurate records of your HSA expenses and save all receipts related to your Medicare expenses. This will help you keep track of your HSA funds and avoid any potential tax issues.

To learn more about Medicare Supplement coverage, read “Unpacking Original Medicare: What Parts A and B cover — and when to consider a Medicare Supplement plan.”

3. What other expenses can I use my HSA funds to pay for after I’ve enrolled in Medicare?

After enrolling in Medicare, there are many expenses that can be paid for using HSA funds. For example, long-term care and most dental, vision and hearing care expenses are not covered by Original Medicare.

Medicare Advantage plans generally cover dental, vision and hearing. However, these benefits are not covered in every Medicare Advantage plan, so if you have Medicare Advantage coverage, it’s worth confirming what is covered by your plan. Regardless, if you have an HSA, you can use those funds to pay for these expenses as long as they meet the IRS requirements for qualified medical expenses.

By understanding which expenses qualify for reimbursement under your HSA, you can make the most of your retirement savings and ensure that you have the funds you need to cover your medical expenses.

4. What if I’m already receiving Social Security?

Another question people have is, how does receiving Social Security benefits impact my ability to use an HSA with Medicare?

If you signed up to receive Social Security benefits, you are automatically enrolled in Original Medicare once you turn 65.* And remember, if you’re enrolled in Medicare, you can no longer contribute to an HSA. Fortunately, that does not affect your ability to use your HSA. You can still use the existing funds in your HSA account to pay for qualified medical expenses, including Medicare premiums and out-of-pocket costs.

Also, keep in mind that Social Security benefits are taxable, while withdrawals funds from your HSA to pay for Medicare premiums will be tax-free. Be sure you understand how your HSA can work together with your Medicare coverage and Social Security benefits.

Conclusion

Medicare and HSA accounts can work well together. HSAs can help you save on health care costs, even after enrolling in Medicare. By contributing as much as you can to your HSA before you enroll and keeping accurate records, you can make the most of your retirement savings.

If you have any questions or concerns, our team is here to help. We want to ensure that you make informed decisions about your health care needs.

*If you were born on the first day of the month, you will be eligible on the first day of the month prior to your birth month. (For example, if you were born on July 1, you will be eligible on June 1.)