Navigating Medicare and HSA

The intersection of Medicare and HSA is one of the most complex areas of retirement healthcare planning. A Health Savings Account (HSA) paired with a high-deductible health plan (HDHP) offers significant tax advantages, but Medicare enrollment changes the equation.

A high-deductible health plan has lower premiums but a greater deductible than standard insurance plans. With reduced healthcare costs through lower premiums, people can set aside more money into their HSAs, creating a personal savings cushion specifically for medical expenses.

The critical rule: once you enroll in any part of Medicare, you can no longer contribute to an HSA. However, you can still use existing HSA funds for qualified medical expenses, including Medicare premiums.

HSAs offer a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. This makes them one of the most powerful retirement savings vehicles.

After age 65, HSA funds can be withdrawn for any purpose (not just medical expenses) without penalty — though non-medical withdrawals are taxed as ordinary income, similar to traditional IRA distributions. Using HSA funds for Medicare premiums, including IRMAA surcharges, remains tax-free.

If you're still working at age 65 and covered by an employer's HDHP, you may consider delaying Medicare enrollment to continue HSA contributions. This can be a smart financial move but requires careful analysis.

Key considerations include the value of continued HSA contributions versus the cost of delayed Medicare enrollment, potential Part B late enrollment penalties, and the interaction with Social Security benefits.

Note that claiming Social Security retirement benefits automatically enrolls you in Medicare Part A, which ends HSA contribution eligibility. If you want to keep contributing, you'll need to delay both Social Security and Medicare.