Can I Use a Health Savings Account to Pay IRMAA?

Healthcare costs in retirement represent a significant financial challenge for many individuals. Understanding the various programs and financial tools available can help manage these expenses effectively. Strategic planning around healthcare savings vehicles and Medicare costs is important for a secure financial future.

Understanding IRMAA

IRMAA, or the Income-Related Monthly Adjustment Amount, is an additional charge applied to Medicare Part B and Part D premiums. This surcharge affects individuals with higher incomes, ensuring those with greater financial resources contribute more to their Medicare coverage. It is determined by the Social Security Administration (SSA) based on tax information.

The SSA assesses IRMAA by reviewing your Modified Adjusted Gross Income (MAGI) from two years prior. For instance, your 2025 IRMAA would be based on your 2023 tax return data. Higher income levels correspond to increased IRMAA charges. The SSA notifies individuals if they are subject to IRMAA.

Health Savings Accounts Explained

A Health Savings Account (HSA) serves as a tax-advantaged savings vehicle specifically for healthcare expenses. To be eligible for an HSA, an individual must be enrolled in a High-Deductible Health Plan (HDHP). Not all HDHPs qualify, but those that do meet specific Internal Revenue Service (IRS) criteria for deductibles and out-of-pocket maximums.

HSAs offer a “triple tax advantage.” Contributions made to an HSA are tax-deductible, reducing your taxable income. The funds within the account grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. Individuals can contribute to their HSA, and employers may also contribute on behalf of their employees. Funds in an HSA roll over year after year and remain with the individual, even if they change employment or health plans.

Using HSA for Medicare Premiums

Once an individual is enrolled in Medicare, funds from a Health Savings Account can be used to pay for various Medicare premiums. This includes premiums for Medicare Part B, which covers medical services, and Medicare Part D, which covers prescription drugs. HSA funds can also cover premiums for Medicare Advantage (Part C) plans.

This eligibility extends to covering the Income-Related Monthly Adjustment Amount (IRMAA) associated with Medicare Part B and Part D. The ability to use HSA funds for these premiums begins when an individual becomes eligible for Medicare, usually at age 65 or due to disability. HSA funds cannot be used to pay for Medicare Supplement (Medigap) policy premiums.

While existing HSA funds can be used for Medicare premiums, individuals cannot continue to make new contributions to an HSA once they are enrolled in any part of Medicare. This rule applies even if an individual is still working and covered by an employer’s HDHP. Continuing to contribute after Medicare enrollment can result in tax penalties. Cease HSA contributions before Medicare enrollment to avoid potential excise taxes on excess contributions.

Other Qualified Health Expenses

Health Savings Accounts offer broad utility beyond Medicare premiums, covering a wide array of qualified medical expenses. These expenses include common out-of-pocket costs such as deductibles, co-payments, and co-insurance. Prescription medications are also considered qualified expenses, allowing HSA funds to cover these regular costs.

HSAs cover various other healthcare services, including dental care, vision care, and certain long-term care insurance premiums. Over-the-counter medications and menstrual care products are also qualified expenses. For a comprehensive list of eligible expenses, individuals can refer to IRS Publication 502.

Accessing HSA Funds

Accessing funds from a Health Savings Account for qualified medical expenses is straightforward. Account holders often have several methods available, such as using a dedicated HSA debit card for direct payments at the time of service. Alternatively, individuals can pay for services out-of-pocket and then submit receipts for reimbursement from their HSA custodian.

Maintaining meticulous records of all qualified medical expenses is important. This includes retaining receipts and Explanation of Benefits (EOB) statements, as these documents substantiate that withdrawals were for eligible purposes. Such detailed record-keeping is necessary to demonstrate compliance with IRS regulations. Withdrawals for non-qualified expenses are subject to income tax and may incur an additional penalty if the account holder is under age 65.