Yes, but you can’t contribute to a health savings account (HSA) after enrolling in Medicare.
You can use the money you have already accumulated without taxes in the account for eligible medical expenses at any time. Once you turn 65, you can even withdraw tax-free money from HSA to pay your Medicare premiums.
The HSA is a tax-friendly way to save on medical expenses. Your contributions are tax deductible. Or, if you participate through your employer, contributions are deducted before your withholding income tax is calculated.
Money grows with deferred tax in the account. And you can download it tax-free for eligible healthcare costs each year.
In 2022, you can contribute to the HSA if you have not enrolled in Medicare and have an HSA-eligible health insurance policy, with a deduction of at least $ 1,400 just for you or $ 2,800 for family coverage. This is true whether you get the insurance through your employer or yourself.
When should I stop contributing to my HSA?
You can contribute to the HSA for as long as you want if you have not signed up for Medicare and have an insurance policy that qualifies for the HSA. However, once you sign up for Medicare, you cannot make new contributions. And if you’re on Medicare, your employer also can’t add to your HSA.
You must stop contributing to HSA from the first month you are enrolled in Medicare Part A or Part B, even if you have a high deductible policy at work. If you enroll in Medicare in the middle of the year, you may be able to make proportional contributions based on the number of months you had a qualifying health insurance policy before your Medicare went into effect.
For example, if your Medicare coverage started on July 1, you can make a half-year contribution to HSA. If you are 55 or older in 2022, the installment for the full year is $ 4,650 for one-time coverage or $ 8,300 for family coverage. In this case, you can contribute up to $ 2,325 for the year if you had one-time coverage or $ 4,150 for family coverage. You have until the deadline for filing taxes from April 15, 2023 to make contributions for 2022.
What expenses are tax-exempt after I’m at Medicare?
At any age you can withdraw HSA tax-free money to pay your health insurance deductions, surcharges, dental care, hearing care, prescription and over-the-counter medications, vision needs, and other eligible health care costs not covered by the insurance.
You can also withdraw tax-free money from the HSA to pay part of the 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 are aged 61 to 70, and $ 5,640 if you are older than 70. Your spouse may also withdraw up to this amount based on his or her age. The allowable limits for withdrawing long-term care premiums are lower at a younger age.
Once you turn 65, you can also withdraw tax-free money from your HSA to pay Medicare Part B, Part D coverage for prescription drugs and Medicare Advantage plans, but not Medicare supplemental plans, also called Medigap. You can also pay your Part A premiums with HSA money if you or your spouse have not worked long enough to qualify for Part A coverage without a premium.
If your premiums are paid directly from your social security benefits, you can withdraw tax-free money from your HSA to recoup these costs. Just be sure to keep track of expenses.
Before the age of 65, if you use HSA money for non-medical expenses, you will have to pay taxes and a 20 percent penalty on withdrawals. The penalty disappears at the age of 65, but you will still have to pay taxes on withdrawals that are not eligible for medical expenses. So to avoid the tax bill, look for qualified expenses, such as Medicare premiums, when making 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 defer Medicare Part A and Part B registration in order to continue contributing to the HSA. But when you leave this job, you will have to register for Medicare within eight months of losing your health insurance, or you will have to pay late enrollment penalties when you sign up for Part B.
If you work for a small employer, with less than 20 employees, you usually have to enroll in Medicare at age 65, as Medicare usually becomes primary coverage and employer coverage is secondary. If you do not enroll in Medicare then you may have major coverage gaps.
Do you already receive social security? If you receive social security benefits, you are automatically enrolled in Part A and cannot be postponed.
Another warning: If you enroll in Part A after the month you turn 65, your Part A coverage may begin up to six months retroactively, but not earlier than the month of your birthday. 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 sign up for Medicare on July 1 and your Part A coverage takes effect on January 1, you cannot make any HSA contributions for the year.